EMI (Equated Monthly Instalment) is calculated using the standard reducing balance formula: EMI = [P × r × (1+r)^n] / [(1+r)^n - 1], where P is the principal loan amount, r is the monthly interest rate (annual rate ÷ 12), and n is the loan tenure in months. The key insight in this formula is that your early EMIs are mostly interest, while your later EMIs are mostly principal repayment. This is why prepaying a loan in the first few years saves significantly more interest than prepaying in the final years.
This is one of the most debated personal finance questions in India. If your home loan interest rate is 9% and your equity mutual fund SIP is returning 12–14%, the mathematical answer is to invest the surplus rather than prepay. However, the psychological and risk-adjusted answer often favours prepayment — a debt-free home provides peace of mind, and loan returns are guaranteed (you save exactly 9%), while SIP returns are market-linked. The right approach: prepay to reduce your loan tenure (not EMI) by making partial prepayments, which saves the most interest, while simultaneously continuing your SIP investments.
Nearly all home loans in India are floating rate loans linked to the bank's Repo Rate-linked Lending Rate (RLLR). When RBI raises the repo rate, your loan rate increases — and banks typically extend your tenure rather than raise your EMI. This is why many borrowers discover their 20-year loan has silently become a 25-year loan after rate hikes. Always check your current outstanding balance, current rate, and remaining tenure from your latest loan statement, and use the "Existing Loan" mode in this calculator to replan your prepayment schedule.