It takes years of hard work to build a house. Thus, owning a house is a dream for many. However, the government’s notification regarding the Employees Provident Fund (EPF) can help turn this dream into reality.

An EPF is a retirement fund that you build from your salary. Every month you and your employer put a portion of your salary into the fund. This money then grows in the future, in time for retirement.

Now, you can use these savings for buying your dream house.

Earlier, you could not withdraw from your EPF account before turning 58. Withdrawals up to 90% were permitted only after attaining the age of 57. With the new government rules, you can withdraw up to 90% of your EPF for financing your new house. Such amount can be used to buy or construct a house. You can also use your EPF savings to pay the Equal Monthly Instalments (EMIs) of your home loan.

Let’s understand what these rules mean for home-buyers:

The government notification:

The government proposed amendments to the EPF Scheme earlier. But, no targets were set as no official notification was passed. The scheme has now been amended. This could benefit 4 crore Employee Provident Fund Organisation (EPFO) members.

Now, you can withdraw up to 90% of your EPF to make down payments for buying houses. You can also pay your home loan EMIs using the EPF money. To be able to make such withdrawals, you must fulfil the following conditions:

  • You are a member of a cooperative or a housing society. And, such a society has at least 10 EPFO members.
  • You have contributed to EPFO for at least 3 years.
  • You have at least Rs.20,000 in your EPF account (alone or together with your spouse).
  • You can withdraw only once during your lifetime.
  • The EMI payments are directly made to the government, housing agency or the primary lending agency.
  • If you spend less than what you withdraw, you must refund the money. This must be done within 30 days of the finalisation of the construction or purchase.

Use your EPF corpus wisely

To give a boost to the ‘Housing for All’ Scheme, the government made buying house easier. However, think carefully before using this flexible option.

Your EPF is your retirement pillow. Ensure it serves its primary purpose before being of any secondary use. Base your withdrawal decisions on your fund’s balance. Also take your working age into consideration. If you have enough money in your account as well as the capability to refill it, consider withdrawing money.

EPF + Home loans = The best way forward

Home loans are blessings for people who cannot afford a house with their savings. The attractive interest rates offered by different banks and non-banking financial companies (NBFCs) make them all the more desirable.

Many lenders, especially NBFCs, even have flexible repayment options. Thus, home loans take you a step closer to your dream abode. However, even with attractive rates, your interest costs can run into lakhs. This is where the new provision becomes extremely helpful. You can reduce your interest cost by partly funding your house with your EPF money.

How much of EPF to use?

It would be wise to assess your borrowing needs before withdrawing. If you have sufficient funds in your account, you can take the entire amount from such an account.

Ideally, if your house costs around 20% of your fund, you can avoid taking a loan. You, thus, avoid an additional interest cost. If, however, the cost eats up 70-80% of your fund, it is wise to go for a mix of EPF and home loan.

Keep in mind the reduced interest rates on EPF. It now entitles you to an interest of 8.65% for 2016-2017.

By saving all or most of your EPF, you, thus, can ensure a financially-secured retired life.

The bottom line

The government gave you an additional source of funds for buying a house. However, make a cost-benefit analysis before utilising the withdrawal option. Think of reducing the cost of buying your house without affecting the financial stability of your retired life. It may, thus, be advisable to go for a mix of EPF and home loans while buying a new house.

To ease your home-buying process, Bajaj Finserv offers different types of flexible home loans at attractive rates.

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