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POSTED BY ON July 28, 2011 3:23 pm COMMENTS (7)
Hi,
1)Recently I changed my company, my PF balance is about 4 lacs in previous company.
2)I have a home loan, outstanding amount is 21 lacs.
3)I calculated that if I withdraw PF amount (4 lacs), and pre-pay home loan with the same, I will save about 15 lacs in home loan payments (assuming 9.5% of avg. interest rate for tenure of 20 years.)
Question: Should I pre-pay the loan by withdrawing PF amount, or keep the amount in PF for my retirement? Any takers?
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one question: when we change job and transfer the PF to new company and after that we decide to take advance for pre payment of loan , is it still taxable. My PF payment has been there for last 15 years. But to my current employer it is only for a year or so. please advise whether i will be levied taxes..??
No , it will not be taxable
IMO, prepaying makes sense.
For PF, we are earning 9.5% for the current year, but it may come back to 8.5 next year.
In that case, rate of interest on home loan is more.
Also, it seems your home loan is fix-o-floaty kind (fixed for 3 or 5 years and then floating), and you are currently in fixed portion. Once you come out of fixed portion and enter into floating region then we are not sure of interest rates. It might be 12%. or even more.
Considering all these, it’s best to prepay certain amount.
Hi Anand,
Indeed, that’s the correct calculation. You can see that I had also arrived at similar figures.
But my question was, should I pre-pay or keep(transfer) the amount for retirement. The question stressing more on financial planning for retirement.
I’m sorry.. I miscalculated it earlier…
Prepaying 4 lakhs, will do the following 2 things
1. Reduce the tenure of the loan from 20 years to 12 years 5 months.
2. Reduce the interest outgo by about 14 lakhs.
This is in assumption that EMI will stay constant at 19575 Rs.
So it is wise to prepay some amount.
And if you decide not to withdraw from PF, make sure to transfer it to new PF account to continue earning interest.
If you keep the sum in your PF account, then it will earn interest for next 3 years only. This is as per the new regulation.
I doubt the calculation that you will be able to save 15 lacs.
According to me, you should save around 8.94 lakhs.
Also make sure there is no tax on PF withdrawal.
For real benefit, you have to get more returns than home loan interest on your savings.