EMI formula
EMI = P × r × (1 + r)n ÷ [(1 + r)n − 1]
Here P is the loan amount, r is the monthly interest rate (for 8.5% a year, r = 8.5 ÷ 12 ÷ 100 = 0.00708) and n is the number of months.
Why most of your early EMIs go to interest
Interest is charged on the outstanding balance. In the first years the balance is high, so a large part of each EMI is interest. The year-wise table above shows how the principal share grows over time. This is why prepaying in the early years saves the most interest.
How to lower your EMI or interest
- Make a bigger down payment to borrow less.
- Compare lenders. A 0.5% lower rate on a ₹30 lakh, 20-year loan saves about ₹2 lakh in interest.
- Prepay with bonuses. Even one extra EMI a year can cut several years off a home loan.
- Choose a shorter tenure if you can afford it. EMI goes up but total interest falls sharply.
Planning to invest the money you save instead? See what it could grow to with the SIP calculator.