How a home loan EMI is calculated (and how to lower it)
The formula, why early EMIs are mostly interest, and four ways to cut the total cost.
Created with AI assistance, reviewed by Meera Iyer · How we use AI
: Clarified that prepayment charges are barred on floating-rate loans to individuals, not fixed-rate loans.
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Your EMI depends on three things: the loan amount, the interest rate and the tenure. The standard reducing-balance formula is EMI = P × r × (1+r)^n ÷ ((1+r)^n − 1), where r is the monthly rate and n the number of months.
In the early years most of the EMI goes to interest. Part-prepayments reduce the principal and therefore future interest.
Choosing a shorter tenure raises the EMI but cuts total interest. Try different combinations in our EMI calculator.
What this means for you
Ask your lender for the full amortisation schedule, and check whether prepayment is free on floating-rate loans (RBI rules generally bar prepayment charges on floating-rate loans to individuals).
Sources
- Reserve Bank of Indiaprimary
- Calculator on this siteother