Does EMI change during the loan tenure?

If you have a fixed-rate loan, your EMI remains constant. If you have a floating-rate loan, your EMI may change if the benchmark interest rate changes.

Is it better to have a higher EMI?

A higher EMI means a shorter loan tenure, which significantly reduces the total interest you pay. If your monthly budget allows it, opting for a higher EMI is financially beneficial.

The Ultimate Guide to EMI Calculation

What is an EMI?

An Equated Monthly Installment (EMI) is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. EMIs are applied to both interest and principal each month so that over a specified number of years, the loan is paid off in full.

The Mathematics Behind EMI

The mathematical formula for calculating EMI is:

E = P x r x (1+r)^n / ((1+r)^n - 1)

Where:

E is the EMI amount
P is the Principal Loan Amount
r is the rate of interest calculated on a monthly basis (i.e., r = Rate of Annual interest/12/100)
n is the loan tenure in months

Amortization Schedule Explained

In the initial years of your loan, a larger portion of your EMI goes toward paying the interest, while a smaller portion pays off the principal. As the loan matures, this proportion reverses. This schedule of repayment is known as an amortization schedule.

How to Reduce Your EMI Burden

Opt for a Longer Tenure

Choosing a longer repayment tenure reduces your monthly EMI amount, making it easier on your monthly budget. However, be aware that this increases the total interest you will pay over the life of the loan.

Make Prepayments

Whenever you have surplus funds, consider making part-prepayments towards your principal. This reduces the outstanding principal, which in turn reduces the interest component of future EMIs.