Withdraw EPF Money for Home Loan Installment: How it affects your Retirement Fund

Introduction

EPF was started for the sole purpose of forcing employees to set aside a certain percentage of their income for their retirement. It was generally perceived that if the contributions were to be used for other purposes, this would have a detrimental impact on the size of the retirement nest egg.

However, using these contributions to finance outstanding housing loans is also another form of long term saving as the property is likely to appreciate after the mortgage is settled. This article discusses how you can utilize your EPF money for your home loan installment and the subsequent impact such a move may have on your retirement fund.

How it Works?

This type of withdrawal involves you withdrawing money from your Account 2 to finance your monthly installments for your housing loan, which was taken up either to buy a new house or build a new one.

Contributors need to go to the EPF to apply for the monthly withdrawal only once, and subsequent payments would be directly credited to their personal accounts every month.

You are eligible to apply if you are:

• A Malaysian Citizen

or

• A Malaysian Citizen who has made Leaving-Country Withdrawal (a full withdrawal) before 1 August 1995 and has opted to re-contribute.

or

• A Non-Malaysian Citizen (Expatriate) who has become an EPF member before 1 August 1998.

or

• A Non-Malaysian Citizen who has obtained a Permanent Resident (PR) status.

• You have not reached age 55 at the time the EPF receives your application. The maximum age allowed for application of this withdrawal is 54 years and 6 months.

• You still have a balance in Account 2 of at least RM600.00.

• You do not have arrears for your housing loan.

Documents required

• For the first withdrawal, you are required to submit all of the following:
• KWSP Form 9P (AHL)
• A photocopy of myKad/IC
• A photocopy of the bank book for your active account
• Bank Confirmation Letter/ Housing Loan Statement
• Deed of Agreement of Sale and Purchase/Build House
• All loan approval letters
• All redemption letters from previous financier(s)
• Proof of Mortgage/Transfer of Ownership (Mortgage Form & Ownership documentations or Binding Transfer of Ownership Letter

For subsequent withdrawals, the following need to be submitted:

• A completed monthly withdrawal form
• A photocopy of myKad/IC
• A photocopy of the bank book for your active account
• Latest housing loan statement

If your loan comes from a bank with an online housing loan verification with EPF, the following need to be submitted:

• A completed monthly withdrawal form
• A photocopy of myKad/IC
• A photocopy the bank book for your active account
• Latest housing loan statement

If you have opted for the refinancing facility, you will have to produce all the required documents similar to first withdrawal.

Example: Individual withdrawal

Example: Individual withdrawal

For joint withdrawals, the amount eligible for withdrawal is the total outstanding balance of the loan or the balance amount in Account II for both applications.

Conditions when EPF will revoke the monthly installment withdrawal and render members to be unable to be eligible to apply for a similar withdrawal in the future:

• Members have a non-performing loan with a financial institution.
• Loans have been revoked/redeemed.
• The house has been sold/auctioned/transferred to another party.
• Members who are convicted of cheating by submitting fraudulent documents/information for this withdrawal

How Does Withdrawing EPF Affect Your Retirement Fund?

If contributors withdraw their EPF for housing purposes, they will in turn have fewer funds for their retirement. However, at least they can be sure that they have roof to live under. For now, property is affordable in Malaysia, but one never knows what will happen to the property market in the future. Looking at Korea and Taiwan, it is almost impossible to own a home at big city if you are not rich.

The move to allow withdrawal of EPF to finance housing loans is a new one, which would benefit about five million active EPF contributors. Contributors who previously found it monetarily tight to buy a property can now consider doing so with this new withdrawal scheme.

This way, some contributors would be able to own better houses and yet be able to lessen their monthly financial obligations.

Photo by jjze

Contributors who are currently homeowners and are paying mortgage can also experience better cash flow as less money is spent out of hand for the loan.

This new withdrawal scheme is also good for those who know how to manage money. They can use this facility to grow their wealth. For instance, consumer debt in the form of credit card loans, personal loans can be paid off; they can invest for better return or even fund higher education.

However, for those who are financially illiterate, more money equals more trouble. They will spend for instant gratification without thinking of future needs. This may cause a social problem in the future when retiree has inadequate funds to live on.

5 Suggestions to channel EPF back to your retirement fund

Since you are reading this blog, I bet that you are amongst those who want to take advantage of this withdrawal facility and grow your retirement further. Here are 5 suggestions to channel your EPF money back to your retirement fund:

1. Buy unit trust fund that will outperform EPF (5% currently) – by applying ringgit cost averaging strategy
2. invest in shares – buy blue chip, aim for high dividend payout
3. buy another property – to receive rental income after retirement
4. buy an annuity plan – to receive yearly income during retirement
5. Pay towards the principle of your housing loan, thus shorten the loan tenure and save on interest charge.

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