Loan amortization explained: how your EMI is really calculated
Your monthly EMI (equated monthly installment) looks like one flat payment — but inside it, interest and principal trade places every single month. Understanding that split is the single best money skill a borrower can have.
The EMI formula
EMI = P × r × (1 + r)n / ((1 + r)n − 1), where P is the loan amount, r the monthly interest rate (annual ÷ 12), and n the number of months. Banks fix this so your payment never changes — but the composition does.
Interest front-loading
Early payments are mostly interest: on a 20-year loan, more than half your first-year EMI goes to interest, not your balance. That's not a trick — it's how amortization works when you owe the most at the start. Our loan calculator shows the full month-by-month breakdown.
Why 30 years costs 2x the house
Interest compounds over the whole life of the loan. A $300,000 mortgage at 6% for 30 years costs ~$347,000 in interest alone — nearly another house. A 15-year term at the same rate cuts total interest by more than half.
The prepayment shortcut
Extra principal payments early are worth far more than later ones, because they stop interest from compounding on that money for decades. Pay one extra EMI per year and a 30-year mortgage often finishes 4–6 years early. Run the numbers first with our mortgage calculator.
Refinancing math
Refinancing only pays if the rate drop outweighs fees and closing costs, and the 'break-even point' comes before you sell. Compare the old and new monthly payments against total costs — don't chase the monthly number alone.