Do you know who to calculate **principle and interest** part in your home loan’s EMI break up? Do you know how each EMI is distributed to principal and interest repayments? It is extremely important to have this knowledge because a lot of real life decisions like prepaying the loan, opting for the loan tenure and many more such aspects depend on how your EMI is structured.

**Basics of Home Loan EMI’s **

What happens in a general scenario? Loan is opted for from a Bank and you start paying your EMIs each month as contracted (see this excellent article on how EMI formula is derived). When you pay your EMIs, some part of it goes towards interest and remaining towards principal repayment. So each month you are reducing your loan by some extent and now as your loan have reduced, you will be paying less interest on your next instalment. In the same way, with each passing month, your loan gets paid by some amount and balancing amount keeps on reducing resulting in paying lesser interest month on month and year on year and the day comes when you fully close your loan. Note that your EMI is generally fixed and internally it’s worked out into ‘interest’ and ‘principal’ repayments.

However, even today, a lot of people have no understanding of the idea that in the early years of repaying the loan, interest component is very high as compared to principal repayment. The longer the tenure of the loan, the interest component will be higher than principal payments and also the rate at which the interest part will come down will also be lower, making sure that in the initial years most of the EMIs goes towards ‘Interest’ and not ‘principal’.

### Example of EMI payment

Lets say you take a HDC Home Loan of Rs 30 lacs for 20 yrs tenure, your EMI would be Rs 28,950/month. In the first EMI, the interest part would be Rs 25,000 and only Rs 3,950 will be the principal payment, which means out of total hdfc home loan of 30 lacs, only Rs 3,950 will be reduced in the first month and rest Rs 25,000 will go away in interest. Sounds disappointing? What is EMI disease ?

In the same way After 100 payments (8 yrs and 4 months), when you would be paying your 101st EMI of Rs 28,950, the interest part would still be as high as Rs 19,891 and the principal part would be Rs 9,060. Still disappointed? Now let’s fast forward towards the end, let’s take 200th payment. When you make your 200th EMI payment of Rs 28,950; this time your interest part would be very less at Rs 8,349 and principal would be Rs 20,601. So now, with all these examples I gave, you can see how interest part is very high in initial years. Let’s look at it from a different point now!

Just consider this- For the scenario above; If you keep paying your EMI’s for 2 yrs (24 payments), you will pay total of 6.94 lacs (24 x EMI) from your pocket, but your loan would just go down by 1.05 lacs! And your outstanding loan would be still 28.95 lacs. In the same way in 5 yrs even though you pay around 17.37 lacs (60 x EMI), your loan outstanding would be down by just 3.06 lacs and loan outstanding would be just Rs 26.94 lacs.

The chart below shows the breakup of interest and principal payment for each year for a 30 lacs loan for 20 yrs tenure assuming interest @10%. So each bar is broken into two parts, where green bar represents Interest part and orange bar represents principal part. It is clearly visible that how interest forms a major part of overall EMI in initial years and only in the later years principal part becomes high.

**Here is the actual breakup of the EMI in numbers**

**Pre-payment of long tenure loan**

A lot of investors opt for 15-20 yrs loan thinking that they will pre-pay the loan in next 4-6 yrs itself because of their salaries will rise or for some other reasons. In these cases, for the initial years they keep paying loan interest only and not a lot towards principal. When they prepay the loan, they end up paying a little lesser amount then original loan amount. Example, if you take a loan of 30 lacs for 20 yrs tenure at 10% p.a. and prepay the loan in 5 yrs itself, you will still end up paying 27 lacs as loan outstanding, even though you have already paid 17 lacs in EMI in last 5 yrs, Pre-payment penalty would be extra! But the positive side is that there might be a good appreciation in the house value itself.

So if you are taking loan for longer duration thinking that you would pre-pay the loan very soon, you need to rethink! This makes sense, once the worth of your house has gone up and there is a decent profit. A better option which I can think of is to pre-pay in small chunks each year along with your EMI’s from the start of the loan payment. It would make sure that you principal goes down in big chunks each month.

If you take short term loans, because of the shorter duration, the bigger chunk of the EMI is actually principal part, hence you can look forward to pre-pay the loan incase you wish to.

### Free Calculators for Loan Amortization

I have created and found out some loan amortization calculators which you can use for calculating your EMI’s and its breakup into principal and interest for each month.

- Download Excel version of Loan amortization calculator (created by me)
- Use this Advanced EMI calculator (copyright Manu NIIT)
- Download this multi variable EMI calculator (Source : Joe Verghese)
- Use the below embeded Loan EMI breakup calculator (direct link)

By now you must have got a clear understanding on loan amotization and how home loan EMI is broken into principle and interest component. Note that the asssumption for this article was that the loan is on “Monthly Reducing Balance”

pavan

Hi Manish,

I m planning to take a home loan for 30 Lakhs for which I have checked EMI in different Home loan calculators & found it to be around 31K for 15 years. So if have additional funds to repay for every quarter, where would that money go will it enter “Interest” or “Principle”. Please help me on this, it would be a benefit if that enters the “Principle category”.

Manish Chauhan

Any additional money will be adjusted against the principle part 🙂

NimeshShah

Can’t we reverse the interest and principle? or is it the banks decision.. Also is there any calculation available which includes any prepayment amount periodically along with the regular EMI’s..

Manish Chauhan

You cant do it . THe interest is higher in the start anyways . If you reverse it how will bank make money?

If you make any prepayment, then that will reduce your outstanding balance !

swapnil

Hi,

I have taken loan of 22,40,000 from sbi and 62,345 for insurance. so total comes to be 2302345.

I have taken disbursement on 2nd august 2014 and started emi from 5th september 2014.

the schedule for interest deduction is as given below. on every last of month the interest component is calculated and gets debited from the account. my actual emi is 21297 but i made a ecs of 21200. My rate of interest was 10.15%

Date Debit Credit Balance

31-Aug-14 PART PERIOD INTER- 18,690.00 -22,58,852.00

5-Sep-14 transfer through ecs 21,200.00 -22,37,652.00

30-Sep-14 INTEREST- 18,691.00 -22,56,343.00

Now my question is

when i compare the above amount interest calculation from the emi calculator(website) it gives me different figures? why so? The interest on the emi calculator is different and the actual deduction that happens is different. could you please explain me on this ? also can you tell me as what formula is used for interest calculation?

Manish Chauhan

I suggest asking for explaination from the SBI customer support on this, as they will give you exact breakup .

Different calculators on websites can have different way for calculating things at times.

Manish

Ravishankar

Can you prepare a table for repayment of a loan in which a person pays a fixed amount over and above the emi .for eg if I take a car loan for 5.5 lacs for a 9.5% interest and 7 yr tenure and I pay 20000 instead of 9150 Rs what will be the total interest and how soon the loan will close

Manish Chauhan

That will require a good amount of calculation which is beyond the scope of comments section.

SantoshT

Hello Manish!

Hope your doing good!

Its an amazing article!

Looking for an advise.Suppose I own a house with no outstanding loan on it & getting an offer of 22lakhs for sale, at the same time i have an outstanding loan of 27 lakh on another house does it make sense for me to sell that house & pay off my loan.

Manish Chauhan

Hi Santosh

Thats something only you can decide. There are many factors here which is beyond my understanding , as its related to your case !

Vasanth

Dear Manish,

Thank you firstly for maintaining this service. I have a simple question to ask – I currently have a SBI MaxGain home loan. If I have funds to pay towards the loan, is it better to park funds in the loan OD account, or is there any reason to have sufficient loan balance for gaining from Sec 24 benefits in taxes? I hear friends some time talking about “leaving sufficient loan balance for tax benefits”. I personally don’t see any reason to pay interest, and gain in taxes, but I wanted to confirm that I am not missing anything. Kindly let me know.

Thank you in advance.

vikky

Sir my self vikrant singh a borrower of sbi ,, the bank fixed a rate of intrest , it was 14.25 but after 2 year check my loan statement then intest rate is some where 16,8, after 3 month 16 % ,then later 15.8 . What should i do ???

Manish Chauhan

Is it not as per the terms and conditions set in your agreement ?

Medha

Hi Manish,

I have taken a home loan of Rs. 10.30 lakhs from SBI for which I will be paying Rs. 26530 monthly EMI for 84 terms. I have already paid the EMI for 34 terms. However, I would like to repay the remaining entire home loan by taking a loan on my FD with SBI, plus gathering some amount from other sources.

How much ( i mean what %) loan I should be getting on my FD which is maturing in Dec’16? Is it okay to tell the bank that I might be using this money to repay the home loan? Will it have any impact on the loan amount I would be getting on my FD ?

I also have OD account with the Bank. Could you please guide me with this regards whether

1. I should repay the home loan as much as I can considering I am not working at present.

2. I should go for OD or a loan on FD.

Manish Chauhan

Sorry I am not eligible to answer this

Learner

Hi Manish,

Following are my loan details:

1. Outstanding loan amt: 14 lacs

2. Bank: Bank Of India

3. Tenure remaining: 89 months

4. EMI per month is 21100

I have two questions:

1. Should I switch my loan to the new banks offering lower rates to save some money? I checked the online calculators for balance transfers but most of them are suggesting to stay with my current bank.

2. My bank is offering to pay 0.25% of outstanding amount and lower interest rate to their current base rate at 9.7. In this case, do they give rebate of all previous years as well? i.e. from the period since lower base rate came in effect.

Learner

Waiting for your suggestion…

Learner

Still waiting for your suggestion…

Manish Chauhan

If your gain overall is more than what you are paying, then it makes sense to move. But you need to check if its worth taking that hassle or not !

Learner

Thanks!

Prabhakar

i have a question about home loan concept,some one please answer it.

currently i am looking to buy a house of rupees 55 lacks and i have only 10 lacks in hand.

but i have a confusion of buying house now or wait for 5 years and invest 50 k permonth from now(50*60=30L+6lac as intrest).

as i wll have 36L in hand after 5 years and also agree that the cost of present house(similar one) after 5 years may increase a bit

will it be good to take home loan of 45 lacks now or save 36 L as mentioned above for 5 years and buy a home by using this 36L as downpayment??

please suggest with proper reasons for better understanding…..

thanks in advance.

Rashmi

I want to take 30 lakh home loan from bank. My father is a govt. employee and he will retire after two years. So, after two years we will prepay 20 lakh of the loan as he will get a lump sum amount on retirement.

My query is that will the bank give us loan knowing well in advance that a major chunk of the loan will be prepayed?

Manish Chauhan

Why do you want to tell them that ?

tardistachyon

Great info. The principal and interest breakup calculator is awesome. I was looking for something like that; I was about give up my search and start writing something in my matlab. You saved me a hell lot of time. Thanks a ton!

Manish Chauhan

🙂 glad to know that !

john

can you please attach excel sheet where it shows when the loan will get closed for particular emi, rate of interest & loan amount

Manish Chauhan

Will do an article on that !

Rashmi

Dear Manish,

Thanks for the wonderful info.

Will a bank give loan to an individual when it knows beforehand that after 2 years, 60% of the loan will be prepayed. I am in dilemma. Please clear my confusion.

Thanks,

Rashmi Gupta

Manish Chauhan

Bank does not take into account the future, because its not certain .

DibyaRanjanMohanty

Dear Manish,

This article really helps. Just wanted to know one thing. In the above example where the person opts for pre-paying the home loan after 5 years but still ends up paying Rs 27 lakhs as principal outstanding, isn’t it unfair that the bank has already collected a huge amount of interest in the first 60 EMIs given that the person is closing the loan in the end of 5th year of loan tenure. Why doesn’t bank give relief and instead charges extra amount on outstanding principal on pre-closure of loan?

Regards,

Dibya

Manish Chauhan

Thats because banking is a “business”

MKashyap

Hi Manish,

I have one doubts regarding this, I have an EMI amount of Rs.15,754 but I am paying over and above my EMI and paying Rs.19,492 per month. So in this case I want to know whether I will be eligible to get a tax benefit on the extra amount Rs. 3,738 that is added towards the principal.

As per the provisional certificate provided by the bank it does not show that extra amount and I am unable to use that amount in 80C. Please suggest how can i utilize that amount.

Thanks,

Misty

Manish Chauhan

Yes, whatever you pay extra goes in your principle outstanding, so it comes under 80C !

Pavan

Hi Manish,

I have taken a loan of 24lakhs from LIC HFL with 9.6 percent interest on Dec 2015.

I am paying now monthly EMI.

I have taken a tenure of 72 months.

Now there is a lockin period of 6 months after that I am planning to pay 3lakhs that is on July 2016 and again 3 lakhs on Dec 2016.

Now can I do this and how much interest am I saving ?

Thanks,

Pavan

Manish Chauhan

You will have to check for the amortization table for that. Ask that from the company