How an EMI is calculated
An Equated Monthly Instalment is the fixed amount you pay each month against a loan, covering both interest and principal. The mathematical formula is:
EMI = P × r × (1+r)n / ((1+r)n − 1)
where P is the principal (loan amount), r is the monthly interest rate (annual rate ÷ 12 ÷ 100) and n is the number of monthly instalments. For a ₹25 lakh home loan at 8.5% per annum over 20 years, this gives an EMI of approximately ₹21,696 — the figure you see in our calculator.
Amortisation — where every rupee of EMI goes
Each EMI is split between interest and principal. Early in the loan, almost the entire EMI is interest because the outstanding principal is at its highest. As the principal shrinks each month, the interest portion drops and the principal portion grows. By the last few EMIs, you're paying mostly principal.
For the same ₹25 L / 8.5% / 20-year loan, in month 1 about ₹17,708 of the ₹21,696 EMI is interest — only ₹3,988 reduces the principal. By month 240 the ratio reverses: ₹21,544 is principal, just ₹152 is interest. Toggle the Yearly/Monthly view in the Amortisation Details table to see this curve.
Total cost — interest can equal the principal
Over a 20-year tenure at 8.5%, total interest is ₹27.07 lakhon a ₹25 lakh loan — more than the principal itself. Shorten the tenure to 15 years and total interest drops to ₹19.3 lakh; cut to 10 years and it's ₹12 lakh. This is why prepayment matters so much: every rupee of early prepayment removes the longest, most expensive interest at the back of the loan.
Should I prepay my home loan?
Compare the post-tax cost of your loan against the post-tax return of your alternative investment. If your home-loan rate is 8.5% and you can earn 12% post-tax investing in equity mutual funds (LTCG-adjusted), investing wins on expected return. But prepayment is risk-free and emotionally satisfying — the standard advice is to maintain a 6-month emergency fund first, max out 80C savings, and then split surplus 50:50 between prepayment and equity SIPs.
Floating vs fixed interest rates
Most Indian home loans are floating-rate, benchmarked to the RBI's repo rate (via EBLR — External Benchmark Lending Rate). When the RBI cuts repo, your EMI either stays the same (and tenure shrinks) or drops (if you ask the bank to adjust). Fixed-rate loans charge a 0.5–1% premium for the same tenure but immunise you against rate hikes.
Tax benefits on home loan
Under the Old Tax Regime: principal repayment qualifies for Section 80C (within the ₹1.5 L cap), and interest paid on a self-occupied property is deductible up to ₹2 lakh per year under Section 24(b). For let-out property, the full interest is deductible against rental income (with set-off against other heads capped at ₹2 lakh). The New Tax Regime allows neither for self-occupied property — only the let-out interest deduction survives. See our Income Tax Calculator for the full picture.