How Much Will it Impact You on Using the Provident Fund Corpus to Repay Your Home Loan?

Last Updated : May 11, 2020, 11 a.m.

The Employees Provident Fund (EPF) opens up numerous possibilities for you. While the primary goal of this is to help generate the retirement corpus, you can also use it to buy a home and fulfill several other goals. We have already discussed how your provident fund deposits can help you buy a home in our previous post. In this post, we will see the role of provident fund deposits in a home loan repayment. Apart from that, we will also keep an eye on the impact it will have on your future. So, let’s begin.

As Much as 90% Corpus Can be Used to Repay a Home Loan

In a breakthrough, the retirement body Employees Provident Fund Organization (EPFO) came out with a ruling allowing its members to use as much as 90% of the corpus, in 2017. You will know that a certain portion of your salary is deducted every month as your contribution to the provident fund. An equitable contribution is also made by your employer. All these contributions also earn you interest. The present rate of interest on provident fund is 8.50% per annum.

But How Much Should You Use to Repay the Home Loan?

If you can repay the home loan without having to compromise on your day-to-day stuff, there’s no need to use your EPF corpus. As retirement days won’t have active income for you to feed on, the greater you accumulate the better it is for you. But if you come across situations where you stay unemployed for long or face health issues, the home loan repayment could be extremely tough. You can thus part pay the home loan using the EPF proceeds. What this will do is lower the principal outstanding and thus reduce the overall interest outgo.

Decide on the part payment amount considering your present EPF balance , the goal amount you want to achieve and the stage of your life. If you are around 30 years old, you will most likely have not accumulated much. This makes a withdrawal from the provident fund corpus in that situation pretty much irrelevant. At that time, you should use other than EPF to do a part payment if paying the loan has become difficult for you. However, if you are 40-45 years old, you may have accumulated a decently large corpus. But even then, don’t use more than 20%-30% of the corpus. Using such a corpus will make your future amount behind by the same proportion.

To ensure you’ve sufficient by the time you retire, save more than usual in your daily routine. So, if you’re saving 10% of your income now, ensure you increase it to 15% and raise the proportion year after year. The increase in the annual remuneration will help you do so. But you will also need to keep a lid on unnecessary expenses to accumulate the desired retirement corpus.

When Can You Withdraw from Your EPF to Repay a Home Loan?

The EPFO allows using the provident fund corpus for a home loan repayment when you complete 10 years of service. In addition to this, the property must have been registered in your name, spouse or be held jointly for the advance to be granted for the said purpose. By the time you look to withdraw, it is important the total contribution including interest must exceed INR 20,000.