EPFO: Is prepaying a loan from EPF money a wise decision?

There is a provision for premature EPF withdrawal for prepayment of a home loan, subject to certain conditions. The EPFO will need a certificate from the loan agency indicating the principal amount and interest as proof.

PF is a major source of one’s retirement corpus.

The Employees’ Provident Fund Organisation (EPFO) is one of the largest social security organisations in the world. Under its Employee’s Provident Fund (EPF), both employers and employees put 12 per cent of the worker’s basic salary into the fund. This helps in creating a corpus for retirement.

EPF allows investors to invest money at regular intervals for a post-retirement corpus. Premature withdrawals are only allowed in certain circumstances such as illness advance or in case of loss of job.

Can members withdraw EPFO funds for home loan prepayment?

There is another provision under which EPFO members can withdraw a section of their funds before retirement. There is scope to withdraw PF funds for “refund of outstanding principal and interest of a loan for purposes under Para 68B.”

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This means that you can withdraw PF funds for home loan prepayment provided that you fulfil certain conditions. The home must be registered in the name of the PF account holder, either individually or in joint possession. The EPFO member must have completed at least 10 years of membership in order to avail of this concession. The amount available to them is 36 months’ basic wages and dearness allowance, total outstanding principal and interest or total of employer and employee's share with interest, whichever is least.

The EPFO will need a certificate from the loan agency indicating the principal amount and interest as proof.

Is it a wise decision to prepay a home loan using EPF money?

You can go in for a prepaying home loan using PF if the interest on the loan is much higher than the interest on EPF. It can help you reduce your liabilities and help in the acquisition of real estate. But there are certain complications.

PF is a major source of one’s retirement corpus, particularly if the member has not made any more investments. Depleting those funds may leave you with less of a debt burden in the present, but can compromise your ability to provide for yourself and loved ones in your post-retirement years. If the interest on EPF is higher than other forms of investment, you may lose the chance to get more returns due to a reduction in your PF amount.

PF withdrawal should be considered the last source of funds. It is better to look for other sources or use bonuses to aid home loan prepayment. It can protect the member’s PF money from any reduction, ensure their retirement corpus remains stable and help them reduce their liability.

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