Should You Use EPF to Pay Off Home Loan? The Math Says No!

• Many salaried individuals consider using their growing EPF balance to pay off home loans, seeking relief from EMIs and long-term obligations.
• While home loan interest rates are around 7.5%, EPF offers 8.25% annual interest, but the real benefit of EPF lies in its tax-free compounding.
• For someone in the 30% tax bracket, 8.25% tax-free EPF return is equivalent to 11% pre-tax, making it a superior investment compared to the 7-7.5% cost of a home loan.
• Using a scenario of Rs 20 lakh each for EPF and home loan, keeping EPF intact allows it to grow to over Rs 44 lakh in 10 years, far exceeding the Rs 9 lakh home loan interest.
• Withdrawing EPF is generally not advisable as it stops tax-free compounding and makes rebuilding the retirement corpus difficult, unless specific conditions like nearing retirement or severe cash flow pressure apply.

Why It Matters: Using EPF to prepay a home loan is often financially disadvantageous due to EPF's superior tax-free compounding.