What is an EMI?
An EMI, or equated monthly instalment, is the fixed amount you pay your lender every month until a loan is repaid. Each EMI covers part of the interest and part of the loan itself (the principal).
The EMI stays the same each month, but the split changes. Early on, most of it is interest. Towards the end, most of it repays the principal. The chart above shows this year by year.
How to use this EMI calculator
- Loan amount: how much you’re borrowing.
- Interest rate: the yearly rate your lender quotes.
- Loan tenure: how many years you’ll take to repay.
You’ll see your monthly EMI, the total interest, the total you’d pay, and a schedule showing how much principal and interest you pay each year and what’s left.
The EMI formula
EMI = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)
- P is the loan amount
- r is the monthly interest rate (an 8.5% yearly rate is 8.5 ÷ 12 ÷ 100 = 0.00708)
- n is the number of EMIs (20 years = 240)
A worked example: a ₹50 lakh home loan
Borrow ₹50 lakh at 8.5% a year for 20 years:
| Item | Amount |
|---|---|
| Monthly EMI | ₹43,391 |
| Total interest | ₹54,13,879 |
| Total you repay | ₹1,04,13,879 |
You’d pay more in interest than you borrowed. In the first year alone, about ₹4.2 lakh of your EMIs goes to interest and only about ₹1 lakh to the loan.
Ways to pay less interest
- Choose a shorter tenure if the EMI is comfortable. The total interest falls sharply.
- Prepay when you can. Even one extra EMI a year, or part of a bonus, can cut years off a home loan. Floating-rate home loans to individuals can generally be prepaid without a penalty.
- Raise your EMI as your income grows. It works like a step-up SIP in reverse.
- Compare rates. A 0.5% lower rate on a large, long loan saves a lot. Review your rate every few years.
Borrowing and investing together
Many people repay a home loan and invest at the same time. A loan is a certain cost; investing builds savings for goals the loan doesn’t cover, like retirement or a child’s education. Plan both together so your EMIs and SIPs fit your budget. See what a monthly investment could build with the SIP calculator, or plan a down payment with the goal SIP calculator.
