An EMI is a level payment that covers interest on the outstanding balance plus a repayment of principal. The payment is constant; the split inside it is not. Front-loaded interest In the first years of a 20-year loan, most of each EMI is interest, because interest is charged on a large outstanding balance. Principal repayment accelerates only in the second half of the schedule. This is arithmetic, not a bank trick. Why tenure matters more than rate cuts Extending tenure lowers the EMI but raises total interest sharply. Cutting tenure by even two years on a 20-year loan typically saves more than a 25 bps rate reduction. Prepayment: apply it to principal, early A prepayment made in year 3 removes far more future interest than the same amount in year 15. Ask the lender to keep the EMI constant and reduce tenure — reducing the EMI instead preserves the long interest tail. Floating rates and repo linkage External benchmark loans reset with the repo rate. When rates fall, banks often keep the EMI flat and shorten tenure by default. Confirm in writing which lever the bank pulled after each reset. Costs beyond interest Processing fees, legal and valuation charges, stamp duty on mortgage deeds, and the insurance the lender bundles. Compare the effective cost, not the headline rate.
This guide is published for education and research. MoneyMust is not a broker or an investment adviser, and nothing here is a recommendation to buy a specific product.