What an EMI actually is
An equated monthly instalment is a fixed payment that covers both the interest for the month and part of the balance. The payment never changes, but its composition does: early on it is mostly interest, and by the end it is almost entirely principal.
That is why a longer term lowers the payment but raises the total cost, often dramatically. Borrowing 5,000,000 at 8% over twenty years costs about 3,036,000 in interest; over thirty years the payment falls by about 15% and the interest rises to roughly 4,209,000.
Why the rate matters more than the term
A one percentage point difference in rate on a long mortgage is worth more than most people assume, because it applies to a balance that stays high for years. It is usually worth more than any amount of negotiating on fees.
Frequently asked questions
- How is the EMI worked out?
- P x r x (1+r)^n / ((1+r)^n - 1), where P is the amount borrowed, r the monthly rate (the annual rate divided by twelve) and n the number of payments. It is the payment that clears the balance exactly over the term.
- Why is so much of the early payment interest?
- Interest is charged on what you still owe, and at the start you owe almost all of it. On a twenty-five year mortgage at 7%, more than two thirds of the first year's payments go on interest. The share falls every year, which is why the breakdown table is worth reading.
- Does paying extra each month help?
- Substantially, because every extra unit comes straight off the balance and stops accruing interest immediately. Enter an extra amount and the calculator shows both the interest saved and how many months come off the term.
- Why is the last payment different?
- The instalment is rounded to whole units of currency, which leaves a small residue over the term. Lenders adjust the final payment to clear it exactly, and so does this.
- How accurate is this?
- The arithmetic is exact and uses decimal rather than floating-point maths, so results are not skewed by rounding. Where a calculation depends on legislation, the page shows which rule year it used, when those rules were last checked and the official source they came from. Results are estimates for information, not advice.
- Are my figures sent anywhere?
- No. Every calculation runs inside your browser. Nothing you type - salary, income, dates or amounts - is sent to our servers, stored or logged. You can disconnect from the network after the page loads and the calculator keeps working.