Take a loan of Rs 20,00,000 at 9 percent annual interest over 15 years. The monthly interest rate is 9 percent divided by 12, which is 0.75 percent, and the tenure is 15 times 12, or 180 months. Putting these into the EMI formula gives a fixed monthly instalment of about Rs 20,285. Over the full 180 months you repay roughly Rs 36,51,360, so the total interest is about Rs 16,51,360, which is close to 83 percent of the amount you borrowed. The EMI stays the same every month on a fixed-rate loan, but the split inside it shifts: in the first month nearly Rs 15,000 of the Rs 20,285 is interest and only about Rs 5,285 reduces the principal, while in the final months almost the whole EMI goes to principal.
How it is calculated
The calculator uses the standard reducing-balance EMI formula. The instalment equals the principal P multiplied by the monthly rate r and by (1 plus r) raised to the power n, all divided by the same growth factor minus one. Here r is the annual rate divided by 12 and n is the number of months. Because the loan is on a reducing balance, interest each month is charged only on the amount still outstanding, so as the principal falls the interest portion of every EMI shrinks and the principal portion grows. The total interest is simply the EMI multiplied by the number of months, minus the original loan. Lower rates, shorter tenures, and any prepayment all cut the total interest, and prepayments early in the loan save the most because that is when the outstanding balance, and therefore the interest, is highest.
Frequently asked questions
How is EMI calculated?
EMI = P x r x (1+r)^n / ((1+r)^n - 1), where P is the loan, r is the monthly interest rate, and n is the number of months. Early EMIs are mostly interest and later ones mostly principal, though the EMI stays constant on a fixed-rate loan.
Does prepaying a loan reduce total interest?
Yes. Any prepayment reduces the outstanding principal, so all future interest is charged on a smaller base. Prepayments made early in the loan tenure save the most because the outstanding balance is highest in those months. Most Indian lenders allow partial prepayment on floating-rate loans without penalty under RBI guidelines.
What is the difference between a fixed and floating rate EMI?
A fixed-rate loan has the same EMI for the entire tenure because the interest rate does not change. A floating-rate loan has an EMI that can go up or down when the benchmark rate (such as the RBI repo rate) changes. Home loans in India are most commonly on a floating rate linked to the lender Repo Linked Lending Rate (RLLR).
How does tenure affect the EMI and total interest?
A longer tenure lowers the monthly EMI, making repayment easier each month, but it increases the total interest paid because you are borrowing the money for a longer period. A shorter tenure has a higher EMI but reduces total interest significantly. Use this calculator to compare different tenures and find the right balance for your budget.