What is EMI (Equated Monthly Installment)?
A fixed monthly payment that repays a loan over its term, covering both interest and principal.
EMI is the equal amount you pay every month until a loan is fully repaid. Early EMIs are mostly interest; later ones are mostly principal. It's calculated with the reducing-balance formula P × r × (1+r)ⁿ ÷ ((1+r)ⁿ − 1). 'EMI' is the South Asian term; the US/UK call it the 'monthly payment'.
Example
A 5,000,000 home loan at 8.5% for 20 years has an EMI of about 43,391.
How your EMI splits over time
Although the EMI amount stays the same each month, what it pays for changes. Early on, most of it is interest on the large outstanding balance and only a little is principal. As the balance shrinks, the interest portion falls and more of each EMI repays principal. This is why paying extra in the first few years of a long loan saves far more than the same amount paid near the end.
How to lower your EMI
Three levers move your EMI: the loan amount, the interest rate and the tenure. A longer tenure lowers the monthly EMI but raises the total interest you pay; a shorter tenure does the opposite. A larger down payment cuts the principal, and even a 0.5% lower rate is worth negotiating. Making occasional part-prepayments against principal shortens the loan and reduces total interest without changing your EMI.