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Buying a house is a big dream. It also means big expenditure, exhausting your lifetime savings in one go. It is therefore not hard to spot people who withdrew from their EPF account to buy a house. But is it a wise move considering EPF is designed to provide financial security after retirement?

Having said that the financial arithmetic confuses many to decode whether one should withdraw from EPF account or not to buy a home ?

Tanwir Alam, founder and CEO Fincart explains that the current interest rate on home loan range from 6.80% – 7.00% per annum. The benefit of the tax exemption reduces the interest rate cost of home loan between 0.70% to even 2.0% per annum. This is after considering that interest paid on home loan (upto Rs 200,000 per year) fetches tax exemptions. This brings down the effective interest rate on home loan down to about 5% – 6.30% per annum range. The interest rate of 8.5% per annum was announced last year by the on Employee Provident Fund.

Alam says, “Many people find loan to be very bothersome and consider it as a burden. Withdrawing from EPF for buying a home may provide just that relief but having said that it is clearly a loss- making proposition to withdraw EPF to buy a home. It will be more prudent to avail a home loan and not withdraw from EPF Account.”

According to the EPF rules, for buying a house, flat or under construction property, you can maximum withdraw up to 90% of the accumulated balance in one’s EPF account, subject to the cost of asset to be acquired. Moreover, you should be member of EPF for at least three years. Earlier the limit was five years.

Money9 Take: EPF is designed to secure your life post retirement. It is therefore not advisable to withdraw from EPF to buy a home. If there is a shortfall it is always good to delay the decision till you have sufficient savings. If you have already withdrawn then you should start an SIP for your comfortable retirement.