Tuesday, November 6, 2012

Making EPF Withdrawals to Pay for Your Properties

In Malaysia, ordinary wage earners like me can take out a withdrawal from the Employee Provident Fund (EPF) to partially pay for property purchases. This withdrawal comes from Account 2, which is about 30% of the fund i.e. if you have RM90,000 in your EPF, you can withdraw up to RM30,000. 

There are 2 types of withdrawals:

1. One time withdrawal to pay for the downpayment or reduce the loan amount - one can make further withdrawals again if there are sufficient funds in one's Account 2

2. Monthly withdrawals to pay for installments to the housing loan

The one time withdrawal is only allowed for one property at a time. That means if you have made a 1st withdrawal to purchase a house, you can only make further withdrawals in the future when you have sufficient savings in your EPF for the same house. If you want to withdraw for another property, you have to sell that house. 

So this is what I tried to do and due to a lack of understanding of the processes in the beginning, I regretably sold my 1st house. If one has sold the 1st house that one made the 1st EPF withdrawal for, one has to provide evidence that the house is now owned by someone else. A search document from the land office is required for this - the S&P agreement is insufficient and not acceptable.  

In fact, you can make this withdrawal as soon as the S&P agreement is signed. You do not need to wait till the property is transferred to your name. Upon submission of the correct documents, the EPF will pay the money directly into your account within 1 week. So, technically you can use this money to pay for the downpayment of the property. If the withdrawal is made 3 years after the date of the S&P agreement, the money will be paid into the bank providing you the loan. 

I procrastinated and found myself submitting the documents to my local EPF office just over a month after the expiry of this 3 years. And then, I found myself without the evidence required by the EPF that my "1st withdrawal property" is now owned by someone else. I had to travel overseas the next day and it was already close to 5pm, I did not have sufficient time to get the document from the KL land office in Jalan Raja Laut. 

Then as I was about leave the EPF Office looking extremely frustrated and dejected, the ever so friendly EPF officer suggested that I make the monthly withdrawal instead. The 2nd option which is monthly withdrawals to pay for installments to the housing loan, one does not need to sell the "1st withdrawal property". This monthly withdrawal can be made for any of your properties provided that there is an outstanding loan amount and the monthly withdrawal does not exceed the bank installments. The total number of months one can make such withdrawals is limited by the funds available in one's Account 2

i.e. if you have RM24,000 in Account 2, and your monthly installment is RM2,000/month, you can make 12 x RM2,000 monthly withdrawals which is paid into your bank account on the dates of your choice and the EPF will send you an SMS to notify you once the money has been paid - fantastic?

The downside of this 2nd option is of course, it serves nothing to reduce the amount of interests charged by the bank. But in hind sight, my bank loan only charges a 4.5% interest while EPF gives us about 6% returns every year. While it would be more prudent to keep the funds in EPF, taking out a monthly amount to pay for my loan actually gives me valuable relief to my cash flow for the next  couple of years.

However, the biggest hind sight or downside is, had I known I need not sell my 1st withdrawal property to make this monthly withdrawal, I would have seen that property increase by a further RM100k in value and collected a further 2 years of RM1,800/month rental from a very good Japanese tenant. 

Sigh... life is so full of regrets, isn't it?  

In this experience, I must say the most important document, besides the 1-page EPF form is the "official statement from the loan bank in EPF's format". My loan was from UOB Bank and they needed a full 10 days to produce such a simple statement. On the other hand, the EPF office at Changkat Bukit Bintang was extremely efficient and friendly. That office is only manned by 2 gentlemen who smile all the time. The money was paid into my account exactly 5 working days after I submitted the form. So, the most painful part of the process was actually getting things done by a corporate UOB bank but it was the government agency EPF that made my day! 


Anonymous said...

thanks for the information. Ya life is full of regrets. I had sold my house and it appreciate another 100k 1 year down the road, while it could have fetched me rm1.5k rental per month giving me almost 10% rental yield. urgh....thinking about it sure "kek sim"....anyway life goes on, hehe

CMY said...

Dear Sin Leong,

Great article as it enlightens me. Thank you for sharing.

Kris said...

The 1st withdrawal for the 1st house, will go directly into your account, and you are free to do anything with it. But subsequent withdrawals, will directly go into the principal payment hence tying you down. Even after selling your 1st home, you should no longer able to have the luxury of the "1st" withdrawal going directly into your account. That is what you are trying to potray right?

sinleong said...

well, unless you have a huge EPF savings, i dont see how the money going into the loan directly or into your account makes any difference. money going into the loan basically reduces the interests and indirectly puts more money in your pocket monthly