What a mortgage payment actually contains
Why the first years are almost all interest, what a longer tenure really costs, and the fees that never appear in the EMI.
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In short
- On a ₹50 lakh loan at 8.5% over 20 years, the first EMI is ₹35,417 of interest and ₹7,974 of principal. It takes years for that to reverse.
- Stretching from 20 years to 30 lowers the EMI by ₹4,945 and raises the total interest by ₹34.3 lakh.
- Half a percentage point of rate on the same loan is ₹3.76 lakh over the term.
- Prepayments made early are worth several times the same amount made late, because they remove interest on every remaining month.
- Floating-rate home loans to individuals cannot carry a prepayment penalty in India. Fixed-rate ones can.
A home loan is the largest financial commitment most people make, and the EMI figure conceals almost everything interesting about it.
EMI = P × i × (1 + i)ⁿ ÷ ((1 + i)ⁿ − 1)
where P is the principal, i the monthly rate and n the number of months. On ₹50,00,000 at 8.5% for 20 years, the EMI is ₹43,391.
Every payment is split, and the split moves
Each instalment pays the interest accrued on the outstanding balance first. Whatever is left reduces the principal.
Because the balance starts large, the early split is lopsided:
| Month | Interest | Principal | Balance |
|---|---|---|---|
| 1 | ₹35,417 | ₹7,974 | ₹49,92,026 |
| 12 | ₹34,773 | ₹8,618 | ₹49,00,489 |
| 60 | ₹31,297 | ₹12,094 | ₹44,06,359 |
| 120 | ₹24,920 | ₹18,471 | ₹34,99,691 |
| 180 | ₹15,181 | ₹28,211 | ₹21,14,937 |
| 240 | ₹305 | ₹43,086 | ₹0 |
After a full year of payments totalling ₹5,20,692, the balance has fallen by ₹99,511. Eighty-one percent of the first year went to interest.
Halfway through the term, ten years in, ₹35 lakh of a ₹50 lakh loan is still outstanding. The principal does not halve at the halfway point — it halves at around year fourteen.
This is not a fee or a trick. It is what charging interest on an outstanding balance produces, and it is the single most useful thing to understand about a long loan.
Tenure costs more than rate
| Tenure | EMI | Total paid | Total interest |
|---|---|---|---|
| 10 years | ₹61,993 | ₹74,39,141 | ₹24,39,141 |
| 15 years | ₹49,237 | ₹88,62,656 | ₹38,62,656 |
| 20 years | ₹43,391 | ₹1,04,13,879 | ₹54,13,879 |
| 25 years | ₹40,261 | ₹1,20,78,406 | ₹70,78,406 |
| 30 years | ₹38,446 | ₹1,38,40,443 | ₹88,40,443 |
Going from 20 years to 30 saves ₹4,945 a month and costs ₹34.3 lakh in interest. Going from 20 to 15 costs ₹5,846 more a month and saves ₹15.5 lakh.
Notice the diminishing return at the long end: the ten years from 20 to 30 buy only ₹4,945 of monthly relief, because by then almost the whole payment is interest and extending it barely reduces the instalment.
Rate matters too, and less:
| Rate | EMI over 20 years | Total interest |
|---|---|---|
| 8.0% | ₹41,822 | ₹50,37,281 |
| 8.5% | ₹43,391 | ₹54,13,879 |
| 9.0% | ₹44,986 | ₹57,96,711 |
| 10.0% | ₹48,251 | ₹65,80,260 |
Half a point is ₹3.76 lakh. Both are worth negotiating; the tenure is worth negotiating first.
Prepayment, and why timing dominates
A prepayment goes entirely to principal, which removes the interest that principal would have generated for every remaining month.
₹5,00,000 prepaid in year two of the loan above saves far more than the same amount in year fifteen, because in year two it eliminates eighteen years of interest and in year fifteen only five.
When prepaying you usually choose between two outcomes.
Reduce the tenure, keeping the EMI the same. This maximises the interest saved and is almost always the better choice.
Reduce the EMI, keeping the tenure. This helps monthly cash flow and saves considerably less.
In India, floating-rate home loans to individuals cannot carry a prepayment or foreclosure charge, by RBI direction. Fixed-rate loans can, and commonly charge 2% to 3%. If a lender levies a charge on a floating-rate loan, that is worth challenging.
The competing use of the money is an investment returning more than the loan rate, post-tax. At 8.5% that bar is genuinely high, and the certainty of the saving usually beats the hope of the return.
The tax position
Under the old regime, a self-occupied property allows a deduction of up to ₹2,00,000 a year of interest under section 24(b), and principal repayment counts within the ₹1,50,000 of section 80C.
Two things to note. Neither is available under the new regime, which is now the default — so for most taxpayers the loan carries no tax benefit at all. And even where it applies, the deduction reduces the effective rate rather than the payment: an 8.5% loan in the 30% bracket costs about 6.9% effectively, only on the portion of interest within the cap.
For a let-out property the interest deduction is uncapped against rental income, though the loss that can be set off against other income is limited to ₹2,00,000 a year.
The tax benefit is a reason to prefer a home loan over other debt. It has never been a reason to take one.
What the EMI does not include
The loan is not the cost of buying.
Stamp duty and registration, 5% to 8% of property value depending on the state. On a ₹65 lakh property that is ₹3.25 lakh to ₹5.2 lakh, payable in cash and not financeable.
Processing fee, typically 0.5% of the loan, often negotiable to zero during promotions.
Legal and technical valuation charges, a few thousand rupees.
Property insurance, and frequently a bundled loan protection policy which is optional and often quietly assumed.
GST on under-construction property, 5% without input credit, or 1% for affordable housing. Ready-to-move property with a completion certificate attracts none.
Maintenance, society charges and property tax, ongoing for as long as you own it.
A useful planning figure is that the total transaction cost of buying is 8% to 12% of the property value on top of the price, and that none of it can be borrowed.
Fixed against floating
Almost all Indian home loans are floating, benchmarked since 2019 to an external rate — usually the RBI repo rate — plus a spread. When the repo moves, the loan rate follows within a quarter.
The lender then normally adjusts the tenure rather than the EMI. A rate rise that goes unnoticed in the monthly payment can extend a 20-year loan by several years, and in extreme cases the EMI no longer covers the interest at all. It is worth checking the outstanding tenure after every rate change rather than only the EMI.
Fixed-rate loans in India are rare, priced 1% to 2% higher, and usually fixed only for an initial period. They can carry prepayment penalties, which floating loans cannot. For most borrowers the floating loan is the right choice and the discipline is to watch the tenure.
How much you can actually borrow
Lenders size a loan on two constraints, and the binding one is usually the first.
Fixed obligation to income ratio. Total EMIs, including this one and every existing loan and card minimum, capped at roughly 40% to 50% of net monthly income. On ₹1,50,000 of take-home pay with a ₹15,000 car EMI, a lender working to 45% will allow about ₹52,500 of housing EMI — which at 8.5% over 20 years is roughly ₹60 lakh of loan.
Loan to value. Capped by RBI at 90% of property value up to ₹30 lakh, 80% up to ₹75 lakh, and 75% above that. The remainder is your down payment, and stamp duty and registration cannot be included in the property value for this purpose.
What the lender will allow and what is prudent are different questions. An EMI at 45% of income leaves very little room for a rate rise, a job change or a medical year, and a floating-rate loan will move. A working ceiling of 30% to 35% of net income survives contact with an ordinary decade.
Your credit score sets the rate rather than the amount. Above 750 gets the advertised rate; between 700 and 750 costs perhaps a quarter to half a point; below 650 the question becomes whether the loan is offered at all. Checking your own score is free and does not affect it.
Joint loans, and who should be on the title
Adding a co-applicant with income raises the eligible amount, since both incomes count towards the obligation ratio.
Two details matter for tax. Each co-owner may claim the interest and principal deductions in proportion to their ownership share and their actual contribution — so two owners each paying half of a loan with ₹4,00,000 of annual interest can claim ₹2,00,000 each rather than ₹2,00,000 between them, under the old regime. And the claim requires being both a co-owner and a co-borrower; being only one of the two gives nothing.
Several Indian states also charge lower stamp duty where a woman is an owner, typically one to two percentage points, which on a ₹65 lakh property is worth ₹65,000 to ₹1,30,000 at registration.
What this calculator assumes
- A reducing-balance loan with equal monthly instalments and a rate constant for the whole term.
- The loan amount you enter, so subtract your down payment from the property price first.
- Processing fees, insurance, stamp duty and registration are excluded — add 8% to 12% of property value for those.
- No prepayment, rate revision or missed instalment.
- Tax deductions are not applied; they depend on your regime, your property's use and your other income.