In this article
An amortization schedule is the full table of a loan: every instalment, split into the part that pays interest and the part that reduces what you owe. Banks send it as a statement; most borrowers never read it. It explains almost everything that feels odd about a loan, such as why the balance barely moves in year one.
How one month is calculated
Take the example loan: ₹30,00,000 at 8.5% a year for 20 years. The monthly rate is 8.5% ÷ 12 = 0.7083%. The EMI formula gives ₹26,035 a month. Every month then follows the same three steps.
- 1Interest for the month₹30,00,000 × 0.7083% = **₹21,250**.
- 2Principal repaidEMI ₹26,035 − interest ₹21,250 = **₹4,785**.
- 3New balance₹30,00,000 − ₹4,785 = **₹29,95,215**.
- 4RepeatMonth 2 charges interest on ₹29,95,215, so interest dips slightly to ₹21,216 and principal rises to ₹4,819.
The EMI never changes. Only the split moves, a little each month, because the balance shrinks.
The schedule at a glance
| Month | Interest | Principal | Balance left |
|---|---|---|---|
| 1 | ₹21,250 | ₹4,785 | ₹29,95,215 |
| 12 | ₹20,864 | ₹5,171 | ₹29,40,293 |
| 60 (year 5) | ₹18,778 | ₹7,256 | ₹26,43,815 |
| 120 (year 10) | ₹14,952 | ₹11,083 | ₹20,99,815 |
| 180 (year 15) | ₹9,108 | ₹16,926 | ₹12,68,962 |
| 240 (last) | ₹183 | ₹25,852 | ₹0 |
After five years you have paid about ₹15.6 lakh in EMIs but cleared only about ₹3.56 lakh of the loan.
The two lines cross at month 143. Before that point, most of every payment is the cost of borrowing.
The year-by-year view
Year 1 interest is ₹2.53 lakh. In year 20 it is only ₹14,000. The loan gets cheaper to carry the longer you hold it.
Total interest is the sum of all 240 interest figures. It is not 8.5% × 20 years, because the balance falls as you pay.
Why the first years are so expensive
Interest is charged on what you still owe, and at the start you owe everything. A larger balance means more interest, which leaves less of the fixed EMI to reduce the balance. The balance then falls slowly at first, and faster later, like a snowball in reverse.
- Interest₹2.53 L (81%)
- Principal₹0.60 L (19%)
Year 1 EMIs total ₹3,12,416. Only about 19 paise of each rupee reduces the loan.
Tenure changes the total cost a lot
A longer tenure lowers the EMI but raises total interest sharply. Same loan, same 8.5% rate:
| Tenure | EMI | Total interest | Interest as % of loan |
|---|---|---|---|
| 10 years | ₹37,196 | ₹14.63 L | 49% |
| 15 years | ₹29,542 | ₹23.18 L | 77% |
| 20 years | ₹26,035 | ₹32.48 L | 108% |
| 25 years | ₹24,157 | ₹42.47 L | 142% |
| 30 years | ₹23,067 | ₹53.04 L | 177% |
Going from 20 to 30 years cuts the EMI by only ₹2,968 a month but adds ₹20.6 lakh of interest.
Each extra five years adds more interest than the five years before it.
Rate changes
| Rate | EMI | Total interest |
|---|---|---|
| 7.5% | ₹24,168 | ₹28.00 L |
| 8.5% | ₹26,035 | ₹32.48 L |
| 9.5% | ₹27,964 | ₹37.11 L |
Each full percentage point moves the EMI by about ₹1,900 and the lifetime interest by about ₹4.5 lakh.
On a floating-rate loan, a rate change usually keeps the EMI the same and changes the tenure instead, or the reverse. Check your sanction letter. The schedule is recalculated from the current balance each time.
What extra payments save
Any extra amount goes straight to principal, so it removes all the interest that balance would have collected for the rest of the loan. We ran two simple plans on the same loan.
- Loan ends in 201 months (16 years 9 months)
- Total interest ₹26.31 L instead of ₹32.48 L
- About 3 years 3 months sooner
- Loan ends in 164 months (13 years 8 months)
- Total interest ₹20.75 L
- About 6 years 4 months sooner
₹5,000 a month is ₹60,000 a year, close to two extra EMIs. The monthly plan saves about twice as much because the money arrives earlier and more often.
Reading a real bank statement
- Find the outstanding principal. This is the number that matters if you want to close the loan today.
- Check the rate applied in each period, especially after a rate reset.
- Add up interest paid for the financial year. It is needed for tax certificates and deduction claims.
- Look for pre-EMI interest. On under-construction homes you may pay interest only until possession.
- Compare the schedule with the calculator. Small differences come from the day count and rounding.
Questions people ask
What is an amortization schedule?
It is a table showing every instalment of a loan, split into interest and principal, with the balance left after each payment.
Why is most of my early EMI interest?
Interest is charged on the outstanding balance, which is largest at the start. The EMI is fixed, so a bigger interest share leaves less to reduce the principal.
How is interest calculated each month on a reducing balance loan?
Monthly interest is the opening balance multiplied by the annual rate divided by 12. Principal repaid is the EMI minus that interest.
When does the principal part overtake the interest part?
It depends on rate and tenure. On a ₹30 lakh loan at 8.5% for 20 years it happens in month 143. Higher rates and longer tenures push it later.
Does paying one extra EMI a year help?
Yes. On the example loan it shortens the term by about 3 years 3 months and saves about ₹6.2 lakh of interest.
Is it better to reduce tenure or EMI after prepaying?
Reducing tenure saves more total interest. Reducing the EMI gives more monthly cash flow. Choose based on your budget and how stable your income is.