What is EMI?

EMI (Equated Monthly Installment) is the fixed monthly payment you make to repay your loan. It consists of two components:

Principal repayment: Reduces your loan outstanding
Interest payment: Cost of borrowing

EMI Calculation Formula

The mathematical formula for EMI calculation:

EMI = P × r × (1+r)^n / [(1+r)^n - 1]

Where:

P = Principal loan amount
r = Monthly interest rate (Annual rate / 12 / 100)
n = Loan tenure in months

Example Calculation

Loan Amount: Rs 50,00,000
Interest Rate: 8.5% p.a. (Monthly: 0.708%)
Tenure: 20 years (240 months)

EMI = 50,00,000 × 0.00708 × (1.00708)^240 / [(1.00708)^240 - 1] EMI = Rs 43,391

Factors Affecting EMI

1. Loan Amount

2. Interest Rate

3. Loan Tenure

Amortization Schedule

Year 1 Breakdown (Rs 50L loan, 8.5%, 20 yrs)

Key Observations

Early years: More interest, less principal
Later years: More principal, less interest
Interest front-loading is common in all loans

Types of Home Loan Interest Rates

Fixed Rate

EMI remains constant throughout tenure
Protection against rate hikes
Usually 0.5-1% higher than floating

Floating Rate

EMI changes with market conditions
Based on MCLR/EBLR/RLLR
Currently more popular

Which to Choose?

If rates expected to rise: Fixed
If rates expected to fall: Floating
Most borrowers prefer floating for flexibility

Tips to Reduce EMI Burden

1. Negotiate Interest Rate

Compare rates across lenders
Bargain for better rates
Check for special offers

2. Increase Down Payment

Pay 30-40% instead of minimum 20%
Reduces loan amount and EMI

3. Choose Optimal Tenure

Balance between EMI affordability and total interest
15-20 years is often optimal

4. Prepayment Strategy

Make lumpsum prepayments when possible
Annual bonus/increments can be used
Reduces total interest significantly

5. Balance Transfer

Transfer to lower rate lender
Compare processing fees vs savings

Prepayment Benefits

Impact of Rs 5 Lakh Prepayment (Year 5)

Tax Benefits on Home Loan

Section 24(b) - Interest Deduction

Self-occupied: Up to Rs 2,00,000 per year
Let out: Entire interest (no limit)
Under construction: In 5 equal installments after completion

Section 80C - Principal Repayment

Up to Rs 1,50,000 per year
Includes stamp duty and registration

Section 80EE/80EEA - Additional Interest

First-time buyers: Additional Rs 50,000/Rs 1,50,000
Subject to loan and property value limits

Tax Saving Example

Home Loan Eligibility

Factors Considered

Monthly income
Existing EMI obligations
Age and retirement age
Credit score
Property value

EMI to Income Ratio

Banks prefer EMI ≤ 40-50% of net income
FOIR (Fixed Obligations to Income Ratio) considered

Eligibility Calculator

Loan Amount	EMI (8.5%, 20 yrs)
Rs 30 lakh	Rs 26,035
Rs 50 lakh	Rs 43,391
Rs 75 lakh	Rs 65,087
Rs 1 crore	Rs 86,782
Interest Rate	EMI (Rs 50L, 20 yrs)
7.5%	Rs 40,280
8.0%	Rs 41,822
8.5%	Rs 43,391
9.0%	Rs 44,986
9.5%	Rs 46,607
Tenure	EMI	Total Interest
10 years	Rs 62,006	Rs 24,40,766
15 years	Rs 49,236	Rs 38,62,532
20 years	Rs 43,391	Rs 54,13,853
25 years	Rs 40,261	Rs 70,78,326
30 years	Rs 38,446	Rs 88,40,465
Month	EMI	Principal	Interest	Outstanding
1	43,391	7,891	35,500	49,92,109
6	43,391	8,166	35,225	49,51,908
12	43,391	8,519	34,872	49,04,847
Without Prepayment	With Prepayment
Total Interest: Rs 54,13,853	Total Interest: Rs 43,98,756
Tenure: 20 years	Tenure: 17.5 years
Savings: Rs 10,15,097
Deduction	Amount	Tax Saved (30% slab)
Sec 24(b) Interest	Rs 2,00,000	Rs 62,400
Sec 80C Principal	Rs 1,50,000	Rs 46,800
Total Annual Savings	Rs 3,50,000	Rs 1,09,200
Monthly Income	Max EMI (40%)	Approx Loan Amount
Rs 50,000	Rs 20,000	Rs 23 lakh
Rs 75,000	Rs 30,000	Rs 34 lakh
Rs 1,00,000	Rs 40,000	Rs 46 lakh
Rs 1,50,000	Rs 60,000	Rs 69 lakh

Conclusion

Understanding EMI calculation helps you plan your home purchase better. Consider all factors—interest rate, tenure, and prepayment options—before finalizing your home loan.

Use our EMI Calculator to calculate your home loan EMI and view amortization schedule.

EMI Calculation for Home Loan: Complete Guide with Formula