How it's calculated
A home loan is repaid in equated monthly instalments. Each EMI pays the month's interest on the outstanding balance first, and the rest repays principal. Over a 20-year loan the interest part dominates for years, which is why total interest on a home loan often exceeds the amount borrowed, and why prepaying early in the loan saves so much.
The formula
EMI = P × r × (1 + r)n ÷ ((1 + r)n − 1), where P is the loan amount, r the annual rate ÷ 12 and n the number of months. Each month, interest = balance × annual rate ÷ 12 and the principal repaid = EMI − interest. The calculator runs this for every month of the loan, and again with your prepayments, keeping the EMI the same so the loan closes early.
Worked example
A ₹50 lakh home loan at 8.5% for 20 years has an EMI of ₹43,391. Over 240 EMIs you pay ₹54,13,879 in interest, which is 52% of everything you pay.
| Line | Amount |
|---|---|
| Principal (loan amount) | ₹50,00,000 |
| Total interest | ₹54,13,879 |
| Total amount paid | ₹1,04,13,879 |
Prepaying ₹5 lakh with the 12th EMI saves ₹16,03,691 of interest and closes the loan 4 years early. Paying ₹5,000 extra every month instead saves ₹13,89,250.
Floating rates and prepayment
Most home loans are floating-rate loans linked to an external benchmark. When the benchmark changes, the lender resets your rate and changes the EMI or the tenure; RBI requires lenders to explain the effect and let you choose between a higher EMI, a longer tenure or a combination, and to send a quarterly statement of what you have repaid.Reserve Bank of India Lenders may not charge prepayment or foreclosure fees on floating-rate loans to individuals for non-business purposes.Reserve Bank of India
Assumptions and limitations
- One rate for the whole tenure. Try a higher rate to see how a rate rise would change your EMI.
- Principal and interest only. Processing fees, property insurance and legal charges are not included; the APR in your Key Facts Statement includes the lender's fees.
- Tax benefits are not included. Under the old regime, interest on a loan for a self-occupied house is deductible up to ₹2 lakh a year and principal counts towards the 80C limit; the new regime allows neither. The income tax calculator compares both regimes.
- Prepayments reduce the tenure. If you ask the lender to reduce the EMI instead, you save less interest.