How EMI is calculated
An EMI (Equated Monthly Instalment) is a fixed monthly payment that clears both the interest and the principal of a loan over an agreed number of months. Every bank in India uses the same reducing-balance formula.
Here P is the loan principal, i is the monthly interest rate (the annual rate divided by 12, then by 100) and n is the tenure in months. The EMI stays constant, but its composition does not: early instalments are mostly interest, later ones are mostly principal.
EMI = P × i × (1 + i)^n / ((1 + i)^n − 1)
A worked example
Take a home loan of ₹25,00,000 at 8.5% for 20 years. The monthly rate is 8.5 / 12 / 100 = 0.7083%, and n = 240 months. The formula gives an EMI of roughly ₹21,696.
Over 240 months you repay about ₹52.07 lakh in total — meaning roughly ₹27.07 lakh of it is interest, more than the amount originally borrowed. This is why the tenure matters as much as the rate.
Why tenure costs more than you expect
Lengthening a loan lowers the EMI but raises the total interest, because the balance stays outstanding for longer. Shortening it does the reverse. The amortisation schedule on this page shows the split month by month, so you can see exactly when your payments start denting the principal.
Prepaying works for the same reason: a lump sum applied to principal removes all the future interest that principal would have accrued. The earlier in the loan it lands, the more it saves.
How is EMI calculated on a home loan in India?+
Indian lenders use the reducing-balance formula EMI = P × i × (1 + i)^n / ((1 + i)^n − 1), where P is the principal, i is the monthly interest rate (annual rate ÷ 12 ÷ 100) and n is the tenure in months. Interest each month is charged on the outstanding balance only, not the original amount.
Does a longer tenure reduce the total cost of a loan?+
No. A longer tenure reduces the monthly EMI but increases the total interest paid, because the outstanding balance earns interest for more months. A shorter tenure means a higher EMI but a lower total cost.
How much interest do I pay on a ₹25 lakh home loan at 8.5% over 20 years?+
The EMI works out to roughly ₹21,696 a month. Over 240 months that totals about ₹52.07 lakh, of which approximately ₹27.07 lakh is interest — slightly more than the amount borrowed.
Why is most of my early EMI going to interest?+
Interest is charged on the outstanding balance, which is highest at the start. Each month the interest portion is balance × monthly rate, and whatever is left of the EMI reduces the principal. As the balance falls, the interest share falls and the principal share rises.
Does prepaying a loan actually save money?+
A prepayment applied to principal removes all future interest that portion would have accrued, so the saving grows the earlier it is made. Whether it is the right use of that money depends on your own situation — this calculator shows the arithmetic, not a recommendation.
Will my actual bank EMI match this calculator exactly?+
It will be very close, but banks differ in rounding, the day interest is applied, and processing or insurance charges bundled into the loan. Treat the result as an accurate estimate rather than a sanctioned figure.
Does prepayment reduce my EMI or my tenure?+
Either — but you usually have to tell the lender which you want. Keeping the EMI the same and shortening the tenure saves far more interest, because the balance clears sooner. Reducing the EMI instead lowers your monthly outgo but leaves the loan running for its original term.
What is the difference between a fixed and a floating interest rate?+
A fixed rate stays the same for the agreed period, so the EMI never moves. A floating rate is linked to an external benchmark and resets as that benchmark changes — when it rises, lenders in India more often extend the tenure than raise the EMI, which quietly increases total interest.
How much EMI can I afford on my salary?+
Lenders typically look at the share of your monthly income already committed to loan repayments, and many are reluctant to approve where total EMIs would exceed roughly 40–50% of net income. That is a lending convention rather than a rule about what is comfortable for you — the figure that fits your own budget is your call.
What happens to my home loan if interest rates go up?+
On a floating-rate loan the lender recalculates. Most commonly the EMI stays put and the tenure lengthens, which is easy to miss because nothing changes in your bank statement — but it adds interest. Ask your lender which lever they applied, then re-run the numbers here with the new tenure.