How to calculate EMI for housing loan?

Hi, Let me help you with your question: how to calculate EMI for home loan? Bank uses the standard reducing-balance formula: EMI = [P × r × (1 + r)ⁿ] ÷ [(1 + r)ⁿ – 1], where:

1. P

   is the principal loan amount,

2. r

   is the monthly interest rate (annual rate ÷ 12 ÷ 100),

3. n

   is the total number of monthly installments (loan tenure in months).

For instance, a Rs. 10 lakh loan at 7.2% p.a. for 10 years would have a monthly interest rate of 0.6% (7.2 ÷ 12), and n = 120. Plugging into the formula gives an EMI of roughly Rs. 11,714.

How to Calculate Monthly EMI for Home Loan?

This formula ensures that EMI remains fixed throughout the loan tenure, but the breakup between interest and principal shifts over time: initial payments are interest-heavy, while later ones contribute more towards the principal.

While manual calculation can be tedious, Bank’s online EMI calculator simplifies it: you just input the loan amount, annual interest rate, and repayment tenure, and the tool instantly shows the EMI, total interest payable, and overall payment breakdown.

Key factors affecting EMI include:

1. Loan amount (P): Higher loans increase the EMI linearly.

2. Interest rate (r): Even a 0.1% change in rate can significantly alter EMI and total interest.

3. Loan tenure (n): Longer tenure lowers EMI but increases total interest cost; shorter tenure raises EMI but reduces interest outgo.

Using the calculator allows borrowers to test different scenarios such as adjusting tenure to fit monthly budget or altering loan amount based on affordable EMI.

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I am currently planning to buy a house in Delhi and have been exploring the financial gateways to do so. I had so many questions and one of them was how to calculate EMI for housing loan. I know there are calculators and it depends on the loan amount yet I wanted an answer from someone who was seasoned in such things. So I contacted my bank and talked to an agent to figure it out. I can share a few things he explained to me here.

Banks have their own formula to calculate EMI for housing loan. I was told that the formula to calculate EMI is - 

EMI = [P x R x (1+R)^N]/[(1+R)^N-1]

Here P, R and N are variables, i.e., the principal amount, rate of interest and number of years. EMI can change if you change the loan tenure, rate of interest or principal amount.

Usually, EMIs are fixed but there can be situations where EMI may vary. How does that happen?

This can happen if you opt for a floating rate of interest. Floating rate of interest keeps changing as per the prevailing market rates. 

I will share an example with you to understand

how much emi for home loan has to be paid. 

Let’s say you apply for a home loan of Rs. 30,00,000 so the EMI calculation will be as follows:

P= 30,00,000

R = 6.70%

N = 20 years

EMI = [3000000 x 6.70/100 x (1+6.70/100)^20]/[(1+6.70/100)^20-1]

EMI = Rs. 22,722