About PPF Account As A Short-Term Home Loan With Loan Against PPF
Do you need immediate financing to buy, renovate, or expand your home? You may obtain a brief-term mortgage backed by PPF. Learn how by reading the blog. In India, the Public Provident Fund (PPF) is the most dependable investment option, according to your father or grandfather. Understand why? PPF is a government-managed investment programme that promises profitable investments. PPF, a well-known alternative for long-term investments, only calls for a minimal deposit of Rs. 500 per fiscal year and incorporates the following government-sponsored savings programmes:
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- SCSS: Senior Citizens Savings Scheme Over 60-year-old Indian citizens are eligible for this programme.
- Sukanya Samriddhi Scheme (SSS): This programme was created to help girls and is available to parents of girls under the age of ten.
- NSCs, or national savings certificates: Any Indian citizen may apply for it at the closest post office, where it is a tax-saving investment programme.
Principal Elements of a PPF Account
| Minimum Monthly Investment Amount | Rs. 500 |
| Tax Benefit | Up to Rs. 1 .5 lakh (under section 80C) |
| Maximum Investment Amount (Per Annum) | Rs. 1.5 lakh (fixed) |
| Risk Involved | Zero. Investing in a PPF account ensures risk-free returns |
| Interest Rate | 7.1% per annum |
| Tenure | 15 years (fixed) |
House loan with a short term and a PPF account
The PPF plan offers a 7.1% annual interest rate and is tax-exempt under the Exempt-Exempt-Exempt (EEE) category. Hence, the principal, maturity amount, and even interest earned are all tax-exempt. The PPF account allows investors to obtain a short-term personal loan while having a 15-year lock-in period. This loan is accessible with a 1% interest rate and is secured by the money they have previously placed. This personal loan qualifies as a short-term home loan because it can be used to buy, renovate, or extend your property.
Advantages & Characteristics of a Short-Term Home Loan Against PPF
Taking up a short-term house loan against a PPF account has the following features and advantages:
- You are not need to put up any collateral in order to obtain a short-term home loan against PPF.
- Low Repayment Period: The maximum period for repaying a loan secured by a PPF is only 36 months (3 years)
- Reduced Interest Rates: The interest rate granted on a loan against PPF is very cheap compared to banks and NBFCs, which makes the repayment affordable.
- Multiple Applications: You may submit one PPF loan application per fiscal year. But, if you repay the whole amount of the prior loan, you may reapply in the next fiscal year.
- Short Lock-In Period: Between the third and sixth financial years following the account’s inception, you may apply for a loan against PPF at any time. However, beginning with the seventh year, you can take a partial withdrawal from your PPF account.
Let’s now examine how to obtain a short-term house loan secured by PPF.
Requirements for Short-Term Home Loans Against PPF Accounts
As was already mentioned, PPF is a long-term investment plan that only permits partial withdrawals of assets to account holders once the minimum lock-in period of 6 years has passed. Nonetheless, the account holder can ask for a short-term loan against PPF if he needs money before the lock-in period.
If you wish to take out a short-term loan against your PPF, you can do so between the third and sixth years after the account was opened. For instance, if you created your PPF account in the years 2020–21, you would not be eligible for a loan until the years 2022–2031. You should also be aware that a loan secured by PPF has a 36-month term, during which time the loan must be fully repaid.
The interest rate for a short-term home loan secured by PPF
Before, the interest rate for short-term PPF loans was 2% higher than the interest rate for deposits. Later on, though, it was just 1% higher than the interest rate earned on the deposit. Only if you are successful in paying off the loan balance within the allotted 36 months will the interest rate stay at 1%.
However, the interest rate increases to 6% p.a. starting on the disbursement date if you are unable to repay the loan within the allotted 36 months.
For instance, the interest rate on the current PPF loan will be 7.1% + 1% = 8.1% p.a. as the current PPF interest rate, as noted above, is 7.1% p.a. If you pay off the loan in full within 36 months, that is.
Yet, the interest rate would increase to 12.1% annually if you paid off the debt after 36 months: 7.1% plus 6%.
Loan Against PPF Interest Rate Calculation
From the first day of the month the loan is taken out until the last day of the month it is returned, an interest rate is computed on the PPF loan. For instance, the interest rate will be levied from May 1 to July 31, 2022, if you take out a short-term house loan against a PPF account on May 15 and repay it on July 18, 2022.
Amount of the short-term home loan secured by the PPF
A PPF account holder is only permitted to borrow up to 25%, or one-fourth of the balance in his PPF account. Also, this loan amount is only available at the end of the second year, which comes right before the year for which the loan is being used.
Additionally, a loan secured by PPF may only be used once every fiscal year, and a subsequent loan may only be obtained after the first has been paid in full.
How to Make an Application for a Quick Home Loan Against a PPF Account
The following steps must be completed in order to apply for a short-term mortgage:
- Obtain Form D from the bank or post office where your PPF account is located. Apply for a short-term home loan against your PPF account by completing and submitting Form D.
- The application will ask for information such as your PPF account number, the amount you need to borrow, etc. along with your promise to refund the account within 36 months.
- Also, the form must be submitted to the post office or bank where you hold your PPF account, together with the PPF account passbook.
Tax advantages of a loan against a PPF
No tax advantages are offered if you take out a loan against PPF. But, if you’ve put money into a PPF account, you can receive tax benefits. Under section 80C of the Income Tax Act, any sum invested in a Public Provident Fund up to a maximum of Rs 1,50,000 is eligible for a tax deduction. In accordance with the Income Tax Act, interest and returns are also not taxable. The greatest option may be to invest in PPF, which offers excellent returns, tax-free returns, and tax-saving opportunities.
Important factors for loan against PPF
When applying for a loan against PPF, there are a number of crucial considerations to make.
PPF loan deadlines: A loan against a PPF may be taken before the six-year mark. Once you have finished your third, fourth, or fifth year, you may apply for a loan. Just 25% of the PPF balance, nevertheless, may be borrowed against. In order to be eligible for a loan against PPF in 2019, 2020, or 2021, Mr. Ankit, for instance, created a PPF account in 2016. He can only get a loan for Rs. 75,000 if his PPF account has a balance of Rs. 3 lakhs. If he fully repays the loan, he takes out a second loan before the sixth year is over.
The interest rate for a PPF loan: You always have to pay interest on loans that you take out. A borrower is charged an interest rate of 1% on loans secured by PPF. From the first day of the month a loan is taken out until it is returned, interest will be charged. For instance, if Arjun borrows money on July 24 and repays it on November 19 of the same year, interest will be assessed until November 30, 2019.
Conclusion to Loan Against PPF
In conclusion, the major incentive to apply for this loan is the low interest rate offered on a short-term house loan against PPF balance. Also, as there is no requirement for collateral, the account holder can easily apply for the loan against PPF without surrendering an asset and repay it with simple payments.
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