It is calculated using the reducing-balance amortization model based on your principal, interest rate, and tenure in months.
A method where interest is computed only on the outstanding principal balance. As you repay principal, monthly interest charges decline.
Repo Linked Lending Rate (RLLR) is an external benchmark rate. Any change in the RBI repo rate translates directly into rate adjustments on your home loan.
The maximum tenure offered by commercial banks in India is 30 years (360 months).
No. Processing fees cover administrative, legal, and valuation checks and are non-refundable even if the loan is rejected.
Yes. Deduct up to ₹2 Lakhs on interest under Section 24(b) and up to ₹1.5 Lakhs on principal under Section 80C per financial year.
Fixed Obligation to Income Ratio (FOIR) is the percentage of your monthly salary spent on EMIs. Banks prefer this to be below 50-60%.
Yes, if you have a floating-rate loan, changes in RLLR or MCLR benchmark rates will cause the bank to adjust your EMI or tenure.
LTV is the percentage of the property value the bank can finance (typically up to 80-90% depending on the property value).
You need PAN, Aadhaar, last 3 months' salary slips, 6 months' bank statements, Form 16, and legal property documents.
An EMI is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. Equated monthly installments are used to pay off both interest and principal each month so that over a specified number of years, the loan is paid off in full.
The Mathematical Formula for EMI
Lenders calculate your EMI using a standard mathematical formula based on the reducing balance method:
Even though your EMI stays the same every month, the proportion of principal and interest changes constantly. In the first few years of a home loan, up to 80% of your EMI might go purely toward paying interest. As the years progress, the interest component shrinks, and the principal repayment component grows.
Frequently Asked Questions (FAQs)
Does my EMI change if repo rates increase?
If you have a floating-rate home loan, an increase in the RBI repo rate will increase your interest rate. Usually, banks prefer to increase your loan tenure rather than increasing your monthly EMI. However, if the tenure hits a maximum cap, the EMI amount itself will be increased.
What happens if I miss an EMI payment?
Missing an EMI attracts late payment penalties (usually 1-2% of the EMI amount per month) and negatively impacts your CIBIL credit score, making future borrowing difficult.