# Home loan: where your EMI goes in year 1 and in year 20

> You pay the same EMI for twenty years, but the money inside it changes sides. In year one about four out of five rupees go to the bank's interest. By year twenty almost nothing does. Seeing that shift is the key to every smart move on a home loan.

Published 2026-10-09 by Toolcloak. 4 minute read. Original: https://toolcloak.pages.dev/articles/home-loan-where-your-emi-goes-in-year-1-and-year-20
Related free tool: [Mortgage Calculator](https://toolcloak.pages.dev/tools/mortgage-calculator)

A ₹50 lakh home loan at 8.5 percent for 20 years has an EMI of **₹43,391**. Over twenty years that adds up to about ₹1.04 crore. The house cost ₹50 lakh of borrowed money, and the bank collects another ₹54 lakh for lending it. This guide shows where that second number comes from, and what you can do about it.

> **In short**
> - The EMI is fixed, but its **split is not**: early EMIs are mostly interest, late EMIs are mostly principal.
> - A longer tenure lowers the EMI but raises the total interest a lot. 30 years costs about 63% more interest than 20.
> - One extra EMI a year, or a steady ₹5,000 extra each month, can cut years off the loan and lakhs off the interest.
> - Check your EMI against take-home pay. Around 30 to 40 percent is where it starts to pinch.

## The loan we will use

**₹50 lakh at 8.5% for 20 years**

|  | Value | Note |
| --- | --- | --- |
| Monthly EMI | ₹43,391 | Same every month |
| Total you pay | ₹1.04 cr | 240 payments |
| Interest alone | ₹54.1 L | Beyond the ₹50 L borrowed |

*All numbers in this guide use this loan unless we say otherwise. They are plain EMI-formula figures: no processing fee, no rate change, no part-payments except where mentioned.*

## Why early EMIs are mostly interest

Each month the bank charges interest on the balance that is still owed. In month one the balance is the full ₹50 lakh, so the interest is about ₹35,400. Your EMI is ₹43,391, so only about ₹7,970 is left to reduce the loan. Next month the balance is a little smaller, the interest a little smaller, and a little more goes to principal. That small gap compounds in your favour over time.

**What a full year of EMIs (₹5.21 lakh) is made of**

|  | Interest to the bank | Principal repaid |
| --- | --- | --- |
| Year 1 | ₹4.21 L interest | ₹1.0 L |
| Year 5 | ₹3.81 L interest | ₹1.4 L |
| Year 10 | ₹3.07 L interest | ₹2.13 L |
| Year 15 | ₹1.95 L | ₹3.26 L principal |
| Year 20 | 23202 | ₹4.97 L principal |

*In the first year only about ₹1 lakh of your ₹5.2 lakh in EMIs reduces what you owe. In the last year nearly all of it does.*

> **What this means in practice:** The best time to prepay a home loan is **early**, because each rupee you pay off in year two removes interest that would have been charged for eighteen more years. A rupee prepaid in year eighteen saves very little.

Try it: [Mortgage Calculator](https://toolcloak.pages.dev/tools/mortgage-calculator). Enter your loan amount, rate and term to see your EMI, total interest and the effect of extra payments.

## Tenure: lower EMI, much higher total

A longer loan feels gentler every month, and that is exactly why it costs more. You borrow the same ₹50 lakh for more months, so interest has more time to be charged.

**Same ₹50 lakh at 8.5%, different tenures**

|  | Value |
| --- | --- |
| 10 yrs | ₹74 L |
| 15 yrs | ₹89 L |
| 20 yrs | ₹104 L |
| 25 yrs | ₹121 L |
| 30 yrs | ₹138 L |

*Totals in lakh rupees. The EMIs are ₹61,993 (10 yrs), ₹49,237 (15), ₹43,391 (20), ₹40,261 (25) and ₹38,446 (30). Going from 20 to 30 years lowers the EMI by only ₹4,945 but adds ₹34 lakh of interest.*

Notice how little the EMI falls once you pass 20 years. The first few years of tenure buy you a lot of relief. The last ten buy you very little.

## A one-point rate change is bigger than it looks

**Monthly EMI for ₹50 lakh over 20 years, by interest rate**

|  | EMI |
| --- | --- |
| 7.5% | ₹40,280 |
| 8.0% | ₹41,822 |
| 8.5% | ₹43,391 |
| 9.0% | ₹44,986 |
| 9.5% | ₹46,607 |
| 10.0% | ₹48,251 |

*Each extra half percent adds roughly ₹1,500 to ₹1,650 a month. Between 7.5% and 8.5% the total interest differs by about ₹7.5 lakh over the loan.*

If your loan is on a floating rate, this table is your risk map. A two-point rise from 8.5% to 10.5% is not a rounding error. Ask your lender whether a rate rise lengthens your tenure or raises your EMI, because the two feel very different.

## Three ways to prepay, compared

**Interest paid on ₹50 lakh at 8.5% (lakh rupees)**

|  | Interest |
| --- | --- |
| No prepayment, 20 years | ₹54.1 L |
| One extra EMI each year, done in 16 yr 9 mo | ₹43.8 L |
| ₹5,000 extra every month, done in 15 yr 7 mo | ₹40.2 L |

*An extra EMI a year is about ₹43,400 of additional money in a year. It saves around ₹10.3 lakh and ends the loan 39 months early. A steady ₹5,000 monthly (₹60,000 a year) saves about ₹13.9 lakh and ends it 53 months early.*

The monthly route wins slightly because the money arrives earlier. But the best plan is the one you will actually follow: a yearly bonus used for one lump-sum prepayment works as well as a standing top-up if you do it every year.

> **Check two things before you prepay:** Ask whether your loan has any prepayment charge (floating-rate loans to individuals usually do not, fixed-rate ones may). And make sure you still have your emergency fund. Paying down an 8.5% loan is good, but not at the cost of borrowing on a card at 36% when something breaks.

## Down payment: a bigger first cheque pays twice

Suppose the home costs ₹70 lakh and you take a 20-year loan at 8.5%. Here is what changes with the down payment:

| Down payment | Loan | EMI | Total interest |
| --- | --- | --- | --- |
| 10% (₹7 L) | ₹63 L | ₹54,673 | ₹68.2 L |
| 20% (₹14 L) | ₹56 L | ₹48,598 | ₹60.6 L |
| 30% (₹21 L) | ₹49 L | ₹42,523 | ₹53.1 L |

*Every extra ₹7 lakh paid up front lowers the EMI by about ₹6,100 and saves around ₹7.5 lakh of interest over the loan.*

## Is the EMI too big for your income?

A common rule of thumb is to keep all your EMIs together below roughly 40 percent of your take-home pay. Lenders themselves often look at somewhere between 40 and 50 percent of income when they approve a loan, but being approved is not the same as being comfortable. If your take-home is ₹1.2 lakh a month, this loan's EMI of ₹43,391 is about 36 percent.

**EMI as a share of monthly take-home pay**

| Zone | Range |
| --- | --- |
| Comfortable | under 30% |
| Stretched | 30–40% |
| Risky | over 40% |

*These bands are a rough guide, not an official standard. Add other EMIs, school fees and rent you still pay. Your own fixed costs matter more than any rule.*

## A five-step checklist before you sign

1. **Work out the total, not only the EMI.** Multiply the EMI by the number of months and subtract the loan amount.
2. **Try two or three tenures.** Pick the shortest one whose EMI you can pay without borrowing elsewhere.
3. **Test a higher rate.** Run the numbers at two points above today's rate and see if you can still manage.
4. **Plan your prepayment.** Decide now what part of every bonus or raise goes to the loan.
5. **Keep six months of expenses aside** before you pour spare money into the loan.

> **Try it:** Open the mortgage calculator, enter ₹50,00,000, 8.5 percent and 20 years, then add ₹5,000 as the extra monthly payment. You should see the term fall to about 15 years and 7 months.

## Frequently asked questions

### How is the EMI on a home loan calculated?

EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1), where P is the loan, r is the monthly interest rate (yearly rate ÷ 12) and n is the number of months. For ₹50 lakh at 8.5% over 20 years it comes to about ₹43,391.

### Why is most of my early EMI interest?

Interest is charged on the balance you still owe. At the start that balance is the largest, so interest is largest too. As the balance falls, the interest part of each EMI falls and the principal part rises.

### Is a longer home loan tenure better?

It gives a lower EMI but raises the total interest a lot. On ₹50 lakh at 8.5%, a 30-year loan costs about ₹88 lakh in interest against about ₹54 lakh for 20 years.

### How much can I save by prepaying a home loan?

On ₹50 lakh at 8.5% for 20 years, paying one extra EMI each year saves about ₹10.3 lakh in interest and ends the loan about 39 months early. An extra ₹5,000 every month saves about ₹13.9 lakh.

### How much of my salary should go to EMI?

A common guide is to keep total EMIs under about 30 to 40 percent of take-home pay. It is a rule of thumb, not a regulation, so adjust it for your own expenses.