How home loan EMI is calculated (with prepayment tips)

The EMI is the fixed monthly payment on a reducing-balance loan. Three numbers set it: the amount you borrow, the yearly interest rate, and the number of months. Early payments are mostly interest, because the balance is still large. An extra payment cuts that balance, so the interest after it falls.

8.25% is not “the” home loan rate. It is the starting rate on the EMI calculator and the prepay home loan vs invest calculator. SBI’s published card from 15 October 2026 runs from 7.50% to 8.80%. 8.25% sits inside that range. The repo rate, which many floating home loans track, is 5.50% from 7 October 2026. Your sanction letter is the rate that matters.

The three numbers that set the EMI

Take the yearly rate and divide it by 12. That is the monthly rate. On 8.25%, the monthly rate is 8.25% divided by 12.

The EMI is the loan, times that monthly rate, times (1 + monthly rate) raised to the number of months, divided by that same power minus 1. At 0% interest, the EMI is simply the loan divided by the months. The EMI calculator rounds the result to the nearest rupee. The last instalment is whatever principal is left, plus that month’s interest, so the balance ends at zero instead of leaving a few rupees.

A bank may also quote a flat rate, where interest is charged on the original amount for the whole tenure. A home loan in India is almost never priced that way. If a lender shows a flat rate, the rupee interest is higher than the same number on a reducing balance. Ask which method the sanction uses.

The EMI does not include a processing fee, loan insurance, or a prepayment charge. Those sit outside the monthly figure. This page does not add them.

Why the first years are mostly interest

Interest each month is the opening balance times the monthly rate. In month one the balance is the full loan, so the interest is at its largest. The EMI stays the same, if the rate and the tenure stay the same. Whatever is left after the interest reduces the principal. Next month the balance is a little smaller, so the interest is a little smaller, and a little more of the EMI goes to principal.

That is the whole story of a reducing-balance table. Nothing in the later years is a reward from the bank. The interest is smaller only because you owe less.

A floating rate breaks the table. If the repo rate moves and your loan is linked to it, the bank usually changes the EMI or the number of months left. The calculator does not guess the next repo move. Type the new rate when you have it.

A ₹50 lakh loan at the starting rate

₹50,00,000 at 8.25% for 20 years. The EMI is ₹42,603. Total interest is ₹52,24,892. You pay back ₹1,02,24,892 if the rate never changes and you pay only the EMI.

Table: ₹50,00,000 at 8.25% for 20 years

In year 1 you pay ₹5,11,236 and only ₹1,02,556 of that cuts the loan. The interest is ₹4,08,680. By year 20 the interest is ₹22,146 and almost the whole payment is principal. The last year’s total is ₹5,11,408, a few rupees off the earlier years, because the final instalment clears the balance.

You can repeat the sum on the EMI calculator. Choose home loan. Leave the amount, the rate and the years, or replace them with the sanction letter. The car and personal-loan buttons use 9.5% and 14% only as starting points. They are not offers.

The same ₹50,00,000 over 15 years, still at 8.25%, has an EMI of ₹48,507. The monthly bill is higher. The interest bill is lower, because the principal falls faster. A longer tenure is a cash-flow choice. It is not a cheaper loan.

What an extra payment actually does

An extra payment goes to principal. It does not pre-pay next month’s interest as a separate fee. After it lands, every later month is charged interest on a smaller balance. That is why an extra rupee in year 2 saves more interest than the same rupee in year 18. The balance it reduces is larger, and the years left are more.

On the prepay calculator’s starting loan, ₹50,00,000 is outstanding at 8.25%, with 15 years left. The EMI is ₹48,507. Add ₹10,000 every month, on top of that EMI. The loan closes in 10.8 years instead of 15. Interest falls by ₹11,68,726.

That interest saved does not depend on the stock market. It is the gap between paying only the EMI and paying the EMI plus ₹10,000. If your rate is higher than 8.25%, the same extra rupee saves more. If it is lower, it saves less. Type your rate.

A few practical points, before any comparison with an investment:

• Read the sanction letter. See whether the loan is floating, fixed, or a mix. The charge rule below follows that label on the day you pay.
• If you can keep the EMI, ask the bank to cut the tenure rather than cut the EMI. A lower EMI feels easier and leaves more interest in the loan.
• Ask which date the part-payment hits the balance. The EMI page assumes you pay only the EMI. It does not model a part-payment. The prepay page does.
• Do not use money you need for an emergency or for a bill that is already due. The interest you avoid is real. Being short of cash the next month is also real.
• A processing fee or insurance you already paid does not come back because you closed the loan early. Do not add those sunk costs to the interest saved.

When the lender cannot charge a prepayment fee

The Reserve Bank of India (Pre-payment Charges on Loans) Directions, 2025 apply to loans sanctioned or renewed on or after 1 January 2026. For a floating-rate loan given to an individual for a purpose other than business, with or without a co-borrower, the lender cannot levy a prepayment charge.

That covers a part payment and a full closure. It does not matter where the money came from. There is no minimum lock-in period under these Directions. A loan that is part fixed and part floating follows the rate that is actually running on the day you prepay. If it is in the floating spell, the ban applies.

A fixed-rate loan is outside that ban. The lender can charge what its policy says, but only if the sanction letter and the loan agreement disclosed it. A charge that was not disclosed upfront cannot be added on the day you pay. If the lender itself asks you to close the loan, it cannot levy a prepayment charge.

These Directions cover commercial banks other than payments banks, co-operative banks, NBFCs and all-India financial institutions. If your loan was sanctioned before 1 January 2026 and has not been renewed, read that agreement as well. Many floating-rate home loans to individuals were already free of a foreclosure charge under earlier Reserve Bank instructions. The 2025 Directions are the rule for a loan sanctioned or renewed from 1 January 2026.

Prepaying, or investing the same extra money

The certain part is the interest you do not pay. On the example above, ₹10,000 a month saves ₹11,68,726 of interest and finishes the loan in 10.8 years.

The uncertain part is what that same ₹10,000 would earn if you invested it instead and kept paying only the EMI. The prepay calculator uses a planning return of 12%, the long-run equity figure also used on the SIP page. It is not a promise. Each year, gains above ₹1,25,000 are taxed at 12.5% under Section 198. The page’s default does not give you a home-loan tax break, which matches the new regime.

At that 12% planning return, the invest path finishes ₹8,13,813 ahead of prepaying, after that equity tax. The invested amount over the 15 years is ₹18,00,000. Tax on those gains in the model is ₹1,82,508.

Change the return to the loan rate itself, 8.25%, and the order flips. Prepaying then finishes ₹46,722 ahead. The interest saved is still ₹11,68,726. The tax on the investment is what tips a same-rate comparison toward the loan. A return you only hope for is not the same thing as interest you know you will not pay.

There is no universal winner. Use the calculator with your outstanding balance, your rate, and a return you are willing to defend. 12% is a planning input. A decade can finish well below it.

Tax on the interest, not on the EMI

From 1 April 2026 the home-loan interest deduction for a self-occupied house is section 22(1)(b). That was section 24(b). On this site the cap is ₹2,00,000 a year. In the example, year-1 interest is ₹4,08,680, which is already above that cap. The deduction cannot exceed the cap, and it cannot exceed the interest you actually paid.

Section 202 (this was Section 115BAC) does not allow section 22(1)(b). If you file under the new regime, prepaying does not “waste” a deduction you were never going to get. If you file under the old regime, a smaller interest bill can shrink the deduction, but only down to the interest you still pay, and never below zero. The income tax calculator applies the cap when you type the interest. The EMI page does not. It is the loan maths only.

The principal you repay is not a separate deduction on these pages. Do not type the EMI into the interest box. Split the interest out of the year’s loan statement first.

A let-out house follows a wider interest rule than the self-occupied cap used here. If that is your case, do not stop at the ₹2,00,000 figure. Read section 22 for the house you actually own.

Figures on this page were checked on 28 October 2026 against the Reserve Bank directions, the repo-rate notification, SBI’s home-loan card, and the Income-tax Act, 2025 sections the calculators already use. The 8.25% starter will move when those cards move. Your sanction letter does not wait for this page.