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Detailed structural breakdown of principal and interest payouts over the course of the tenure.
| Year | Beginning Balance | Principal Paid | Interest Paid | Total Paid (EMI * 12) | Ending Balance | Payout Mix |
|---|
An EMI (Equated Monthly Installment) is a fixed payment amount made by a borrower to a lender at a specified date each calendar month. EMIs are applied to both interest and principal each month, so that over a specified number of years, the loan is fully paid off.
The standard mathematical formula to calculate EMI is:
EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
Where:
• P: Principal Loan Amount.
• R: Monthly Interest Rate (Annual Rate / 12 / 100).
• N: Number of monthly payments (Tenure in months).
In the initial years of your tenure, a larger portion of the EMI is allocated towards paying interest, because the outstanding balance is high. As the years progress and the principal gets repaid, the outstanding balance decreases, which causes the interest component to decrease and the principal repayment component to increase.
Yes, you can reduce your EMI through: (1) making a prepayment, which reduces the outstanding principal balance; (2) refinancing your loan to a lower interest rate; or (3) requesting your bank to extend the loan tenure (though this increases total interest paid).