How to Calculate Home Loan Interest: Monthly, Yearly, and Total Formulas

Last updated: Oct 2026

Home loan interest is calculated on the reducing balance, so each month's interest falls as you repay principal. The Equated Monthly Instalment (EMI) stays level while its interest share shrinks.

• Monthly interest: outstanding balance × annual rate ÷ 12
• Month 1 on Rs. 50 lakh at 8.50%: Rs. 35,417 of interest and Rs. 7,974 of principal
• Year 1: Rs. 4,21,182 of interest, or 81% of what you pay
• Total over 20 years: Rs. 54.14 lakh

• Flat-rate trap: an 8.50% flat rate equals about 12.34% on the reducing balance

  
  

Check your loan statement against these formulas. If a lender quotes a flat rate, convert it before you compare offers.

Interest for a month equals the outstanding principal multiplied by the annual rate, divided by 12. The rest of your EMI repays principal.

Formula used: Monthly interest = outstanding balance × annual rate ÷ 12 ÷ 100. Principal repaid = EMI − monthly interest. New balance = old balance − principal repaid.

For Rs. 50 lakh at 8.50% p.a., month 1 interest is 50,00,000 × 8.50 ÷ 12 ÷ 100 = Rs. 35,417. The EMI is Rs. 43,391, so Rs. 7,974 repays principal. Month 2 starts from a balance of Rs. 49,92,026, so its interest is a little lower.

Add the monthly interest for the 12 months, or read it from the repayment schedule. Total interest equals the EMI times the number of months, minus the loan.

Assumptions: Rs. 50 lakh, 8.50% p.a., 20 years. Total interest is 43,391 × 240 − 50,00,000 = Rs. 54,13,879.

Because the balance is largest at the start. In year 1, Rs. 4,21,182 of the Rs. 5,20,693 you pay is home loan interest, which is 81%.

By year 10, the interest share falls to 59%, and by year 15 to 37%. This is why a prepayment in the early years saves the most. The guide to how to calculate a Rs. 10 crore home loan EMI shows the same pattern on a larger loan.

A flat rate charges interest on the original loan for the whole tenure, while a reducing rate charges it on the falling balance. The same number gives very different costs.

Formula used: Flat interest = loan × rate × years. The 8.50% flat EMI of Rs. 56,250 equals about 12.34% on the reducing balance. Ask a lender whether its quoted rate is flat or reducing before you compare.

A part-prepayment cuts the balance, so every later month's interest falls. If you keep the EMI, the loan ends sooner.

On the Rs. 50 lakh loan, a Rs. 5 lakh prepayment after 12 EMIs, with the EMI unchanged, cuts the remaining term from 228 months to 180 months. Remaining interest falls from Rs. 49.93 lakh to Rs. 33.89 lakh, a saving of Rs. 16.04 lakh.

The Reserve Bank of India (Pre-payment Charges on Loans) Directions, 2025, bar prepayment charges on floating-rate loans to individuals for non-business purposes, from 1 January 2026.

It is interest on only the amount disbursed so far. Until the lender releases the full loan, you pay interest on the part released.

Formula used: Pre-EMI interest per month = amount disbursed × annual rate ÷ 12 ÷ 100.

If the lender has released Rs. 10 lakh of a Rs. 50 lakh loan, the monthly pre-EMI interest at 8.50% p.a. is Rs. 7,083, which is Rs. 21,250 over 3 months. Pre-EMI interest rises with each stage of release. Ask for the stage-wise schedule.

Consider Harish Menon, a 38-year-old manager in Kochi with a household income of Rs. 1.5 lakh a month and a CIBIL Score of 757, who holds the Rs. 50 lakh loan above.

The interest certificate from the lender shows Rs. 4,21,182 for the year, but Harish can deduct only Rs. 2 lakh, and only in the old regime. He compares both regimes before he files. See the guide to Section 80EEA for an older extra deduction.

Your loan statement shows the interest and principal in each EMI. Ask Bajaj Finance for the interest certificate that you need for tax filing.

Approval timelines can extend where the statement and your own calculation differ, and minimum income thresholds can differ by city. Check your home loan eligibility and test your own figures with the home loan EMI calculator.