How an EMI is built
An equated monthly instalment keeps the payment constant but changes what it is made of. In the early years most of each instalment is interest and very little reduces the principal. That reverses slowly, and only in the final years does the balance fall quickly.
This is why prepaying early has a disproportionate effect — a rupee paid in year three removes far more future interest than the same rupee paid in year fifteen.
What the total interest figure tells you
On a twenty-year home loan the interest paid often approaches or exceeds the amount borrowed. That is not a reason to avoid borrowing for an appreciating asset, but it is a reason to compare a shorter tenure before choosing the longest one available.
A shorter term raises the instalment and cuts the total interest sharply. Run both here before you decide.
Before you commit
- Total EMIs across all loans are generally best kept well within 40% of take-home income.
- Check whether the rate is fixed or floating, and what the reset mechanism is.
- Check prepayment terms. Floating-rate home loans to individuals generally carry no prepayment charge; other loans may.