Tuesday, May 6, 2008

Withdrawal of EPF money to reduce housing loan

Most EPF a.k.a. KWSP members know that they can widhdraw the money in their EPF Account II for the purpose of reducing or settling the balance of their housing loan taken from a financial institution approved by EPF for the purchase or construction of a house in Malaysia. This can help them to settle their housing loan in shorter period and save on the interest payable to the bank, at the trade-off of losing the annual dividend payable by EPF on that amount of money.

This withdrawal is eligible to:

  • A Malaysian citizen
  • A permanent resident in Malaysia
  • An expatriate who joint as member of EPF before 1 August 1998
To apply for this withdrawal, you must have minimum savings of RM500 in your EPF Account II and have not reached 55 years of age.

The withdrawal process is pretty much the same as the withdrawal made to partially finance the purchase of new house. You just need to complete the Form KWSP 9C (AHL) and submit it together with the required supporting documents to the nearest EPF office. You must go to the EPF office by yourself because your thumbprint is required to verify your application.

The required supporting documents are:
  • Your MyKad
  • Photocopy of both side of your MyKad, printed on the same page of A4 size paper
  • Letter from the bank confirming your housing loan details and the latest outstanding balance. You have to apply for this letter from your bank.
Previously this kind of withdrawal can only be done at the frequency of every 3 years. Since 2007 the eligible frequency has been reduced to once per year. I have done this withdrawal for 2 times, and each time I got the money within 2 weeks upon submission.

The money is made payable to the bank for your housing loan account, and will directly use to reduce your loan principal. You can hardly withdraw it for other usage, and by right, you shouldn't do that too. If you intend to make use of the money otherwise, read my other article about EPF withdrawal which enable you to do that. Your housing loan statement for all subsequent months after that should show that the interest charges have been reduced.

Is it a wise move to perform this withdrawal of EPF money to reduce your housing loan? The answer is yes if you foresee that the dividend from EPF in the coming years is probably lower than the interest rate of your housing loan. Otherwise, it might not be a wise choice, as keeping your money to grow in your EPF Account II is more beneficial than reducing the interest payable for your housing loan account.


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