How Loan EMIs and Amortization Work
An Equated Monthly Installment (EMI) is a fixed monthly payment made by a borrower to a lender. Each payment is split into two parts: paying down the interest on the remaining loan, with the balance reducing your principal.
Standard EMI Mathematical Formula
EMI = [P × r × (1 + r)n] ÷ [(1 + r)n − 1]
Where P is Loan Principal, r is Monthly Interest ($Rate \div 12 \div 100$), and n is the tenure in months ($Years \times 12$).
Frequently Asked Questions
Why is the interest portion high in the initial years? ▼
Interest is always computed on the total remaining principal balance. In early loan years, the outstanding principal is high, meaning most of your monthly EMI goes toward interest rather than principal reduction.
Are there prepayment penalties in India? ▼
Under RBI guidelines, banks and NBFCs cannot charge any foreclosure or prepayment penalties on floating-rate home loans given to individual borrowers.