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EPF Home Loan and EMI Payment Research Team | Posted On Monday, September 17,2018, 04:30 PM

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EPF Home Loan and EMI Payment



EPF Home Loan and EMI Payment

To ease the process of closing a Home Loan, the Employee’s Provident Fund Organization (EPFO) allows you to partially withdraw from your Provident Fund to buy or renovate a house. There are certain conditions:

  1. Withdrawal can be made just once.
  2. Property should be in yours, spouse’s name or jointly in your names. The construction should begin within 6 months of withdrawal and be completed within 12 months.
  3. The purchase of an already constructed house or renovations should be made within 6 months of withdrawal.
  4. To begin the withdrawal process, you’ll have to fill Form 31 and submit an EPF declaration form stating the reason for withdrawal.
  5. You have to be a member of a registered housing society which has at least 10 members.
  6. If you don’t want to be a member of a housing society, you must be in possession of all the requisite documents.

Note: The withdrawal is tax-free.

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EPF Loan Eligibility:

For construction or buying:

1.  You should have completed 5 years of service.

2.  A maximum of 36 times the current wages or basic salary can be withdrawn.

For repaying a home loan:

1.  You must have completed 10 years of service.

2.  A maximum withdrawal of 36 times the current wages can be made.

To purchase a site or a plot:

1.  You should have completed at least 5 years of service.

2.  Maximum withdrawal is limited up to 24 times the wages or basic salary.

SEE ALSO: Should You Avail A Home Loan From Banks Or NBFC?

To refurbish or renovate:

1.  You should have completed at least 5 years of service.

2.  Maximum of 12 times your wages or basic salary can be withdrawn.

To repair:

1.  You should have completed at least 5 years of service.

2.  Maximum of 12 times your wages or basic salary can be withdrawn.

Pre-EMI and full EMI repayment schemes on under construction homes:

1.  Full EMI: Full EMI payment begins once construction is complete. Some banks allow full EMI payment, even when the amount is being disbursed. By paying full EMI, interest is repaid and outstanding loan amount is reduced during the tenure.

2.  Pre-EMI: Pre-EMI is the interest applicable on the disbursed loan amounts. Payment of pre-EMI begins when the house is under construction. Once construction is complete, Pre-EMI payments end and full EMI payments begin. In case of Pre-EMI, only the interest portion is paid. Principal remains unchanged. Naturally, Pre-EMI is lesser than full EMIs.

For example: If you avail a Home Loan of Rs 15 Lakhs for 25 years. Say the construction of this house takes 2 years and you wish to pay Pre-EMIs during that period. After the construction ends, you’ll have to start paying full EMIs instead of Pre-EMIs.

The full loan tenure will be:

2 years (Pre-EMI period) + 25 years (Loan tenure) = 27 years

When banks disburse the loan amount, they give you an option to start repaying immediately via Full EMIs or Pre-EMIs. From the above example you see the loan tenure will be 27 years, if you choose Pre-EMI. But if you choose to pay via Full EMI, loan tenure will reduce (only 25 years). Therefore, it is better to pay Full-EMIs as long as the loan tenure lasts, rather than pay pre-EMIs and lengthen loan tenure.

See also: No Cost EMI

Tax benefits on Home Loan:

You can enjoy tax benefits under both the methods of repayment. However, as discussed earlier, you can start claiming tax deduction only on completion of the construction, not anytime before.

Late possession, delay in construction:

Fault of the builder or developer:

If you fail to get the possession of your property on time, you can take action against the developer as prescribed by law:

1.  Send a notice to the builder claiming refund of money paid along with interest and damages.

2.  File a consumer complaint against the developer for ‘deficiency in service’ under the Consumer Protection Act, 1986.

3.  A dispute of a value lower than Rs 20 Lakhs should be filed with the District Commission.

4.  A dispute of over Rs 20 Lakhs should be filed with State Commission.

5.  A dispute of over Rs 1 Crore should be filed with the National Commission, New Delhi.

6.  A regular suit can be filed with the court under the Indian Contract Act, 1872.

7.  If the developer is fraudulent, that is, if they knew that the contract wouldn’t be fulfilled within the defined time, or if they misrepresented facts, so as to convince you to book the property, you may initiate criminal proceedings.

Damage relief:

1.  You can claim funds needed to buy alternate accommodation in the area.

2.  You can claim the money given to the builder.

3.  You can claim interest on payments that you have made so far.

4.  If the delay is quantifiable, you can claim compensation for spending rent on alternate accommodation.

5.  You can also claim damages towards opportunity cost, that is, for the returns you would get had you invested somewhere else.  

Keep in mind:

1.  Check the developer’s credibility before signing any contract.

2.  Read through the agreement and disclaimers.

3.  Send a legal notice to the developer and wait for them to respond, before taking any action.

What if you can’t pay off Home Loan?

1.  Approach the lender and explain your situation. Don’t wait for too long. Collect all the Home Loan documents like past EMI payment details, notices sent by bank, loan agreement and so on.

2.  Convince them that you intend to repay the Home Loan in full. Ask for options to find a solution to repay the loan.

3.  Banks don’t wish to take your property in possession. They want you to repay your loan instead. If you can’t repay in full, they might at least settle the loan for a lesser amount. This is because loan defaults result in a rise in NPA (Non Performing Assets) ratio which is not good for their Balance Sheet.

What the bank may offer:

1.  Restructuring of loan: Banks may offer to restructure the Home Loan. They may offer to reduce the EMI.

2.  Repossession: Banks offer to go for repossession with your co-operation. They will sell or auction all collateral.

3.  Grace period: The bank might grant relief by giving you time to restart EMIs. But, you will have to pay late Payment Charges.

If you still cannot afford to pay off your Home Loan, banks will take possession of your property. It will be auctioned off within 30 days.

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