About PPF Account as a Short-Term Home Loan with Loan Against PPF
Doyouneedimmediatefinancingtobuy,renovate,orexpandyourhome?Youmay obtainabrief-termmortgagebackedbyPPF.Learnhowbyreadingtheblog.In India,thePublicProvidentFund(PPF)isthemostdependableinvestmentoption, accordingtoyourfatherorgrandfather.Understandwhy?PPFisagovernmentmanagedinvestmentprogrammethatpromisesprofitableinvestments.PPF,awellknownalternativeforlong-terminvestments,onlycallsforaminimaldepositofRs. 500perfiscalyearandincorporatesthefollowinggovernment-sponsoredsavings programmes:
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SCSS:SeniorCitizensSavingsSchemeOver60-year-oldIndiancitizensare eligibleforthisprogramme.
SukanyaSamriddhiScheme(SSS):Thisprogrammewascreatedtohelpgirls andisavailabletoparentsofgirlsundertheageoften.
NSCs,ornationalsavingscertificates:AnyIndiancitizenmayapplyforitat theclosestpostoffice,whereitisatax-savinginvestmentprogramme.
Principal Elements of a PPF Account
MinimumMonthlyInvestmentAmount Rs.500
TaxBenefit UptoRs.1.5lakh(undersection80C)
MaximumInvestmentAmount(Per Annum) Rs.1.5lakh(fixed)
RiskInvolved
Zero.InvestinginaPPFaccount ensuresrisk-freereturns
InterestRate 7.1%perannum
Tenure 15years(fixed)
House loan with a short term and a PPF account
ThePPFplanoffersa7.1%annualinterestrateandistax-exemptunderthe Exempt-Exempt-Exempt(EEE)category.Hence,theprincipal,maturityamount,and eveninterestearnedarealltax-exempt.ThePPFaccountallowsinvestorstoobtain ashort-termpersonalloanwhilehavinga15-yearlock-inperiod.Thisloanis accessiblewitha1%interestrateandissecuredbythemoneytheyhavepreviously placed.Thispersonalloanqualifiesasashort-termhomeloanbecauseitcanbe usedtobuy,renovate,orextendyourproperty.
Advantages & Characteristics of a Short-Term Home Loan Against PPF
Takingupashort-termhouseloanagainstaPPFaccounthasthefollowingfeatures andadvantages:
Youarenotneedtoputupanycollateralinordertoobtainashort-term homeloanagainstPPF.
Low Repayment Period: Themaximumperiodforrepayingaloansecured byaPPFisonly36months(3years)
Reduced Interest Rates: TheinterestrategrantedonaloanagainstPPFis verycheapcomparedtobanksandNBFCs,whichmakestherepayment affordable.
Multiple Applications: YoumaysubmitonePPFloanapplicationperfiscal year.But,ifyourepaythewholeamountofthepriorloan,youmayreapplyin thenextfiscalyear.
Short Lock-In Period: Betweenthethirdandsixthfinancialyearsfollowing theaccount'sinception,youmayapplyforaloanagainstPPFatanytime. However,beginningwiththeseventhyear,youcantakeapartialwithdrawal fromyourPPFaccount.
Let'snowexaminehowtoobtainashort-termhouseloansecuredbyPPF.
Requirements for Short-Term Home Loans Against PPF Accounts
Aswasalreadymentioned,PPFisalong-terminvestmentplanthatonlypermits partialwithdrawalsofassetstoaccountholdersoncetheminimumlock-inperiodof 6yearshaspassed.Nonetheless,theaccountholdercanaskforashort-termloan againstPPFifheneedsmoneybeforethelock-inperiod.
Ifyouwishtotakeoutashort-termloanagainstyourPPF,youcandosobetween thethirdandsixthyearsaftertheaccountwasopened.Forinstance,ifyoucreated yourPPFaccountintheyears2020–21,youwouldnotbeeligibleforaloanuntilthe years2022–2031.YoushouldalsobeawarethataloansecuredbyPPFhasa36monthterm,duringwhichtimetheloanmustbefullyrepaid.
The interest rate for a short-term home loan secured by PPF
Before,theinterestrateforshort-termPPFloanswas2%higherthantheinterest ratefordeposits.Lateron,though,itwasjust1%higherthantheinterestrate earnedonthedeposit.Onlyifyouaresuccessfulinpayingofftheloanbalance withintheallotted36monthswilltheinterestratestayat1%.
However,theinterestrateincreasesto6%p.a.startingonthedisbursementdateif youareunabletorepaytheloanwithintheallotted36months.
Forinstance,theinterestrateonthecurrentPPFloanwillbe7.1%+1%=8.1%p.a. asthecurrentPPFinterestrate,asnotedabove,is7.1%p.a.Ifyoupayofftheloanin fullwithin36months,thatis.
Yet,theinterestratewouldincreaseto12.1%annuallyifyoupaidoffthedebtafter 36months:7.1%plus6%.
Loan Against PPF Interest Rate Calculation
Fromthefirstdayofthemonththeloanistakenoutuntilthelastdayofthemonth itisreturned,aninterestrateiscomputedonthePPFloan.Forinstance,theinterest ratewillbeleviedfromMay1toJuly31,2022,ifyoutakeoutashort-termhouse loanagainstaPPFaccountonMay15andrepayitonJuly18,2022.
Amount of the short-term home loan secured by the PPF
APPFaccountholderisonlypermittedtoborrowupto25%,orone-fourthofthe balanceinhisPPFaccount.Also,thisloanamountisonlyavailableattheendofthe secondyear,whichcomesrightbeforetheyearforwhichtheloanisbeingused. Additionally,aloansecuredbyPPFmayonlybeusedonceeveryfiscalyear,anda subsequentloanmayonlybeobtainedafterthefirsthasbeenpaidinfull.
How to Make an Application for a Quick Home Loan Against a PPF Account
Thefollowingstepsmustbecompletedinordertoapplyforashort-termmortgage:
ObtainFormDfromthebankorpostofficewhereyourPPFaccountis located.Applyforashort-termhomeloanagainstyourPPFaccountby completingandsubmittingFormD.
TheapplicationwillaskforinformationsuchasyourPPFaccountnumber, theamountyouneedtoborrow,etc.alongwithyourpromisetorefundthe accountwithin36months.
Also,theformmustbesubmittedtothepostofficeorbankwhereyouhold yourPPFaccount,togetherwiththePPFaccountpassbook.
Tax advantages of a loan against a PPF
NotaxadvantagesareofferedifyoutakeoutaloanagainstPPF.But,ifyou'veput moneyintoaPPFaccount,youcanreceivetaxbenefits.Undersection80Cofthe IncomeTaxAct,anysuminvestedinaPublicProvidentFunduptoamaximumofRs 1,50,000iseligibleforataxdeduction.InaccordancewiththeIncomeTaxAct, interestandreturnsarealsonottaxable.Thegreatestoptionmaybetoinvestin PPF,whichoffersexcellentreturns,tax-freereturns,andtax-savingopportunities.
Important factors for loan against PPF
WhenapplyingforaloanagainstPPF,thereareanumberofcrucialconsiderations tomake.
PPF loan deadlines: AloanagainstaPPFmaybetakenbeforethesix-yearmark. Onceyouhavefinishedyourthird,fourth,orfifthyear,youmayapplyforaloan.Just 25%ofthePPFbalance,nevertheless,maybeborrowedagainst.Inordertobe eligibleforaloanagainstPPFin2019,2020,or2021,Mr.Ankit,forinstance,created aPPFaccountin2016.HecanonlygetaloanforRs.75,000ifhisPPFaccounthasa balanceofRs.3lakhs.Ifhefullyrepaystheloan,hetakesoutasecondloanbefore thesixthyearisover.
The interest rate for a PPF loan: Youalwayshavetopayinterestonloansthatyou takeout.Aborrowerischargedaninterestrateof1%onloanssecuredbyPPF. Fromthefirstdayofthemonthaloanistakenoutuntilitisreturned,interestwill becharged.Forinstance,ifArjunborrowsmoneyonJuly24andrepaysiton November19ofthesameyear,interestwillbeassesseduntilNovember30,2019.
Conclusion to Loan Against PPF
Inconclusion,themajorincentivetoapplyforthisloanisthelowinterestrate offeredonashort-termhouseloanagainstPPFbalance.Also,asthereisno requirementforcollateral,theaccountholdercaneasilyapplyfortheloanagainst PPFwithoutsurrenderinganassetandrepayitwithsimplepayments.
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