EMI math without the marketing
In this chapter: The EMI formula and the front-loaded interest structure · Why a 20-year home loan repays ~2× the principal as interest · When a single extra principal payment shortens the loan by years · Floating vs fixed rates; the MCLR / EBLR regime and your rate review
EMI = Equated Monthly Installment. It is the equal payment that, over the loan tenure, repays both principal and accrued interest exactly to zero. The formula is fixed once principal, rate, and tenure are set. The trick they do not tell you: in early years, almost the entire EMI is interest, and very little is principal. The principal really starts shrinking only past the midpoint of the loan.
EMI formula: P × r × (1+r)^n ÷ [(1+r)^n − 1], where P is principal, r is monthly rate, n is months. For a 30-lakh, 20-year, 9% loan: monthly rate = 0.75%, n = 240, EMI ≈ ₹26,992. Total paid = ₹26,992 × 240 = ₹64.8 lakh. Interest paid = ₹34.8 lakh — more than the loan itself. In year 1, ~80% of every EMI is interest. By year 10, it crosses 50% principal. By year 15, it is 70% principal. The interest-heavy front-loading is why pre-paying just one extra EMI per year shortens the loan by 3-4 years.
On floating-rate home loans (now mandatorily linked to External Benchmark Linked Rate, EBLR, which tracks the RBI repo rate), banks must reset your interest within three months of an EBLR change. They do not always pass through cuts proactively — write to the bank requesting a reset whenever the repo rate moves more than 25 bps. The cost of switching to another bank is regulator-capped at zero for floating-rate retail home loans, so threats to switch carry real weight. Most home-loan borrowers can save 30-50 bps just by negotiating.