An EMI (equated monthly instalment) is the same amount every month, but what it pays for changes. Early on, most of it is interest. Late in the loan, most of it repays what you borrowed.
The formula
Banks quote a yearly rate and charge a twelfth of it each month. If r is that monthly rate and n the number of months:
EMI = loan × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)
For ₹40 lakh at 9% over 20 years, r = 0.75% and n = 240, which gives an EMI of ₹35,989.
Month one
Interest is charged on what you owe: ₹40,00,000 × 0.75% = ₹30,000. Only the remaining ₹5,989 of the first EMI repays the loan. That is why the amount you owe falls so slowly at first.
Over the whole loan
- 240 EMIs of ₹35,989 add up to about ₹86.37 lakh.
- So the interest is about ₹46.37 lakh, more than the ₹40 lakh borrowed.
- After 15 of the 20 years you still owe about ₹17.34 lakh.
- Borrowed₹40.00 lakh
- Interest over 20 years₹46.37 lakh
9% a year over 20 years, no prepayment.
- Interest paid in the year
- Loan repaid in the year
Year of the loan
See the numbers
| Year of the loan | Interest paid in the year | Loan repaid in the year |
|---|---|---|
| Year 1 | ₹3.57 lakh | ₹74,908 |
| Year 2 | ₹3.50 lakh | ₹81,935 |
| Year 3 | ₹3.42 lakh | ₹89,621 |
| Year 4 | ₹3.34 lakh | ₹98,029 |
| Year 5 | ₹3.25 lakh | ₹1.07 lakh |
| Year 6 | ₹3.15 lakh | ₹1.17 lakh |
| Year 7 | ₹3.04 lakh | ₹1.28 lakh |
| Year 8 | ₹2.92 lakh | ₹1.40 lakh |
| Year 9 | ₹2.78 lakh | ₹1.53 lakh |
| Year 10 | ₹2.64 lakh | ₹1.68 lakh |
| Year 11 | ₹2.48 lakh | ₹1.84 lakh |
| Year 12 | ₹2.31 lakh | ₹2.01 lakh |
| Year 13 | ₹2.12 lakh | ₹2.20 lakh |
| Year 14 | ₹1.92 lakh | ₹2.40 lakh |
| Year 15 | ₹1.69 lakh | ₹2.63 lakh |
| Year 16 | ₹1.44 lakh | ₹2.88 lakh |
| Year 17 | ₹1.17 lakh | ₹3.14 lakh |
| Year 18 | ₹87,897 | ₹3.44 lakh |
| Year 19 | ₹55,631 | ₹3.76 lakh |
| Year 20 | ₹20,337 | ₹4.12 lakh |
The EMI stays at ₹35,989. Interest takes the larger share of it for the first 12 years.
| Year | Interest paid | Loan repaid | Still owed at the end |
|---|---|---|---|
| Year 1 | ₹3.57 lakh | ₹74,908 | ₹39.25 lakh |
| Year 5 | ₹3.25 lakh | ₹1.07 lakh | ₹35.48 lakh |
| Year 10 | ₹2.64 lakh | ₹1.68 lakh | ₹28.41 lakh |
| Year 13 | ₹2.12 lakh | ₹2.20 lakh | ₹22.37 lakh |
| Year 15 | ₹1.69 lakh | ₹2.63 lakh | ₹17.34 lakh |
| Year 20 | ₹20,337 | ₹4.12 lakh | ₹0 |
Year 13 is the first year the EMIs repay more of the loan than they pay in interest.
What a yearly prepayment does
Paying a little extra each year, while keeping the EMI the same, cuts the interest sharply, because every rupee prepaid stops attracting interest for the rest of the loan. In our rent vs buy tool, paying an extra ₹1 lakh at the end of each year on the loan above clears it in year 13 instead of year 20, and the interest paid falls to about ₹27.97 lakh.
That extra money has to come from somewhere, of course. The tool counts it as part of what the owner pays, so the comparison with renting stays fair: the renter gets to invest the same amount.
Try it
Your loan
- EMI
- ₹35,989
- Total interest
- ₹46.37 lakh
- Loan ends in
- Year 20
Of the first EMI, ₹30,000 is interest and ₹5,989 repays the loan.
Before you prepay
Whether prepaying is the best use of spare money depends on what else you could do with it, any prepayment charges on your loan, and any tax benefit on home-loan interest that you would give up. The tool shows the interest saved; the rest is your call.
For education only. Not investment, tax or insurance advice. Examples use the figures stated in the guide; check your own before you act.