I saw a news today regarding housing loan, and there are many netizens comment that they took their Employees Provident Fund (EPF) money to settle their housing loan earlier.
Is it a wise decision to take out EPF money to settle housing loan earlier?
Here is an example:
Housing loan amount: RM199,000
Interest rate: 3.15%p.a.
Loan tenure: 25 years
Outstanding balance at the end of 15th year: RM98,635.60
Based on the information above, if I would like to do early settlement, I have to take out RM98,635.60 from EPF to settle off my housing loan at the end of 15th year (180th month).
According to the calculation shown below, I can save a total of RM16,477.72 interest for early settlement.
However, I could have made a potential of RM62,031.40 dividend if I leave the RM98,635.60 at EPF with expected 5% annual return (expected return based on past performance) for 10 years.
I might be earning additional RM45,553.68 (RM62,031.40 – RM16,477.72) dividend if I do not take out my EPF to settle off my housing loan earlier.
Hope that this simple calculation can solve the doubt of everyone who is planning to take out the EPF to do early settlement.
Yet, I received some queries regarding the high housing loan interest rate of about 4%-5% in 20 to 35 years back, is it worth to take out the EPF to settle their housing loan when the rate increases back to 5%?
Based on EPF historical performance, the time where the housing loan interest rate is at about 5%, the EPF dividend is about 7%-8%. Despite the historical performance does not guarantee future performance, but it can always serve as a guide for us before making our financial decision.
About the Author
Angel Chan is a Licensed Financial Planner attached to UOB Kay Hian Wealth Advisors Sdn Bhd. Besides providing comprehensive financial advisory to her clients, she is also committed to educate the public about the correct financial management mindset and methodology through article, YouTube video and Financial Management Workshop conducted by her and the team. Do reach out to her for more information.
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