How is EMI calculated?
EMI = P × r × (1 + r)n ÷ [(1 + r)n − 1], where P is the loan amount, r the monthly interest rate (annual rate ÷ 12 ÷ 100) and n the number of monthly instalments. Each month the bank charges interest on what you still owe, and the rest of your EMI reduces the loan. That is why the early years of a long loan are mostly interest.
How extra payments help
Anything you pay above the EMI goes straight to the principal, so the next month’s interest is charged on a smaller balance. A small monthly extra, or one bonus used as a prepayment, can cut years from a home loan. Use Pay extra to save interest to see the exact interest and months saved.
How much loan can I afford?
Lenders look at how much of your take-home pay goes to EMIs. Most allow 40 to 50% for all loans together. The affordability tab turns that into a maximum EMI, and then into the largest loan that EMI can repay at your rate and period. Treat it as the ceiling, and borrow less if you want room for other goals.
Tax benefits on a home loan
In the old tax regime, interest on a self-occupied home loan is deductible up to ₹2 lakh a year under Section 24(b), and principal repaid counts within the ₹1.5 lakh Section 80C limit. The new regime gives neither. Check the latest rules, or use the salary calculator to compare regimes with your home-loan interest included.
How to reduce your EMI burden
- Make a larger down payment to lower the principal.
- Negotiate, or move the loan to a lender with a lower rate.
- Prepay whenever you get a bonus. Early prepayments save the most interest.
- Pick the shortest period you can comfortably afford.
Frequently asked questions
Is a longer tenure better?
A longer tenure lowers your EMI but increases the total interest. Choose the shortest tenure you can comfortably afford.
Does this include processing fees?
Only if you enter one under Processing fee. The fee is paid upfront, so we show the rate you really pay once it is included. Insurance and other charges are not included.
Is interest calculated on the reducing balance?
Yes. Banks charge interest on the outstanding balance, which is what this calculator models. Some personal and vehicle loans quote a flat rate on the original amount, which costs much more. Ask for the reducing-balance rate before comparing.
What happens when the interest rate changes?
On a floating-rate loan, lenders usually keep your EMI and change the tenure when rates move. Your total interest changes with it. Re-run the calculator with the new rate and the balance you still owe.
Should I prepay my loan or invest the money?
If your loan rate is higher than the after-tax return you expect from investing, prepaying is a certain gain. If it is lower, investing may win, but returns are not guaranteed. Many people do a bit of both.