How Home Loan EMI is Calculated
Understanding the EMI calculation formula helps you make informed decisions about your home loan.
The EMI Formula
EMI (Equated Monthly Installment) is calculated using the standard formula:
EMI = P × r × (1+r)^n / ((1+r)^n - 1)
Where:
- P = Principal loan amount
- r = Monthly interest rate (annual rate / 12 / 100)
- n = Number of monthly payments (tenure in months)
Example Calculation
Let's calculate EMI for a ₹40 lakh loan at 7.2% interest for 20 years:
- Principal (P) = ₹40,00,000
- Annual rate = 7.2%
- Monthly rate (r) = 7.2 / 12 / 100 = 0.006
- Tenure (n) = 20 × 12 = 240 months
Using the formula, the EMI comes to approximately ₹31,537 per month.
Principal vs Interest Split
In the early years of your loan, a larger portion of your EMI goes toward interest. As time progresses, more goes toward principal repayment. This happens because:
- Interest is calculated on the outstanding principal
- As principal reduces, interest component decreases
- With fixed EMI, principal component increases accordingly
Disclaimer: This guide is for educational purposes only. Actual EMI calculations may vary based on lender policies and rounding methods.