What is the EMI formula used by banks in India?

EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1). P is the loan principal, r is the monthly interest rate (annual rate ÷ 12 ÷ 100), and n is the loan tenure in months. All banks in India use this standard reducing balance formula.

Why does the EMI stay the same but the interest component changes each month?

Because the formula keeps total payment constant, but your outstanding loan balance reduces with each payment. As the balance falls, the interest charged on it also falls — so more of the fixed EMI goes toward principal. This is called an amortization schedule.

Does making a prepayment reduce my EMI or tenure?

Most banks offer you a choice. Reducing tenure saves significantly more total interest (every month cut means less compounding). Reducing EMI gives you more monthly cash flow. For floating rate home loans, RBI rules prohibit banks from charging prepayment penalties.

What percentage of my salary should I spend on EMI?

The standard guideline is 40% of net take-home salary for all EMIs combined. Banks approve up to 50–55% FOIR (Fixed Obligation to Income Ratio), but 40% is safer for financial stability. If you earn ₹70,000 net, keep total EMIs under ₹28,000.

Home Loan

How EMI is Calculated in India — Formula, Step-by-Step Example

Q: What is the EMI for a ₹50 lakh home loan?

At 8.5% for 20 years: EMI ≈ ₹43,391/month. At 9% for 20 years: EMI ≈ ₹44,986/month. At 8.5% for 15 years: EMI ≈ ₹49,245/month. Use an EMI calculator for your exact bank rate and preferred tenure.

By CalcBharat.com Finance Team · April 2026 · 8 min read

EMI (Equated Monthly Installment) is the fixed amount you pay to your bank every month to repay a loan. Each EMI has two components: interest and principal. Understanding exactly how it's calculated helps you make smarter loan decisions.

Use our Free EMI Calculator — instant results without doing the math yourself.

The EMI Formula

    EMI = P × r × (1+r)^n / ((1+r)^n - 1)

    P = Principal loan amount | r = Monthly interest rate (annual rate ÷ 12 ÷ 100) | n = Loan tenure in months

Worked Example — Rs 30 Lakh Home Loan, 8.5%, 20 Years

Step 1: P = 30,00,000. Annual rate = 8.5%, so monthly rate r = 8.5/12/100 = 0.007083. Tenure n = 20 × 12 = 240 months.

Step 2: (1+r)^n = (1.007083)^240 = 5.3133

Step 3: EMI = 30,00,000 × 0.007083 × 5.3133 / (5.3133 - 1) = 30,00,000 × 0.007083 × 5.3133 / 4.3133

Step 4: EMI = Rs 26,035 per month

How EMI Splits Between Principal and Interest (Amortization)

Here's what your Rs 26,035 EMI looks like in the first 6 months on a Rs 30 lakh loan at 8.5%:

Month	EMI	Interest Portion	Principal Portion	Balance Remaining
1	Rs 26,035	Rs 21,250	Rs 4,785	Rs 29,95,215
2	Rs 26,035	Rs 21,216	Rs 4,819	Rs 29,90,396
3	Rs 26,035	Rs 21,182	Rs 4,853	Rs 29,85,543
6	Rs 26,035	Rs 21,079	Rs 4,956	Rs 29,70,940
60 (Yr 5)	Rs 26,035	Rs 19,429	Rs 6,606	Rs 27,40,004
120 (Yr 10)	Rs 26,035	Rs 16,743	Rs 9,292	Rs 23,61,455
240 (Yr 20)	Rs 26,035	Rs 183	Rs 25,852	Rs 0

Notice: in Month 1, Rs 21,250 of your Rs 26,035 EMI is pure interest — only Rs 4,785 reduces your principal. In Year 10, you still owe Rs 23.6 lakh of the original Rs 30 lakh. This is why prepayment in early years is so powerful.

Why Early EMIs Are Mostly Interest

This happens because interest is charged on the outstanding balance. When the balance is high (early in the loan), interest is high. As you pay down principal month by month, the interest portion shrinks and the principal portion grows — but slowly at first.

How Prepayment Dramatically Reduces Total Interest

On the Rs 30 lakh, 8.5%, 20-year loan: Total interest without prepayment = Rs 32.48 lakh. If you prepay Rs 2 lakh at the end of Year 1: you save approximately Rs 5.1 lakh in interest and close the loan 2 years early.

Why is early prepayment so powerful? Because the Rs 2 lakh reduces principal immediately — and every month after that, interest is calculated on a smaller base.

Compare banks: Best Home Loan Banks in India 2026 — Rates Compared

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CalcBharat.com Finance Team

Home Loan & Finance Experts

All calculations verified using standard financial formulas. Actual EMI may vary slightly by lender due to rounding. Last updated: April 2026.

What is the EMI formula used by Indian banks? +

EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1). P = loan amount, r = monthly interest rate (annual rate ÷ 12 ÷ 100), n = tenure in months. All Indian banks use this standard reducing balance formula — the same one in our EMI calculator.

Why does the EMI stay constant but the interest changes each month? +

Because the outstanding balance reduces with each payment. Lower balance = less interest charged that month = more of the same EMI goes to principal. This is amortization. In year 1 of a 20-year loan, ~80% of your EMI is interest. By year 18, ~80% is principal.

What is the EMI for a ₹50 lakh home loan? +

At 8.5% for 20 years: ₹43,391/month. At 9% for 20 years: ₹44,986/month. At 8.5% for 15 years: ₹49,245/month. Total repayment on the 20-year option: ~₹1.04 crore — you pay ₹54 lakh in interest on a ₹50 lakh loan.

Does prepayment reduce EMI or tenure? +

Most banks let you choose. Reducing tenure saves more total interest (recommended if you can afford it). Reducing EMI improves monthly cash flow. For floating rate home loans, RBI prohibits prepayment penalties — so prepay whenever you have surplus funds.

What % of my salary should go toward EMI? +

Keep total EMIs under 40% of net take-home. Banks approve up to 50–55% FOIR but 40% is financially healthier. At ₹70,000 take-home, keep all EMIs under ₹28,000 combined. Factor in existing car loans or personal loans before taking a home loan.