How a Home Loan Works in India: EMI, Amortisation, Prepayment and Tax Benefits
Understand home loan principal vs interest split, amortisation schedule, prepayment benefits, Section 24b and 80C tax deductions under the old regime in India.
Quick answer
In the early years of a home loan, most of the EMI goes towards interest. A ₹50L loan at 8.5% for 20 years costs ~₹43,391/month and repays ₹54L in interest over the term. Prepaying even ₹50,000/year in the first 5 years can save ₹5–8L in interest.
When this matters
This is useful when you want to compare scenarios using your own numbers instead of generic rules. It is designed for Indian households using Niyamfin calculators for private, browser-side estimates.
Key numbers or assumptions
- Under the old tax regime: Section 24b allows up to ₹2L deduction on home loan interest per year; Section 80C allows up to ₹1.5L on principal repayment.
- These deductions are not available under the new tax regime.
- Floating rate loans (linked to repo rate) change EMI or tenure when RBI changes rates.
Example calculation
₹60L loan at 9% for 20 years: EMI ≈ ₹53,984. In month 1, ~₹45,000 is interest and only ~₹8,984 reduces the principal. By year 10, the split is roughly equal.
Use the calculator
Want to estimate this with your own numbers? Use the relevant Niyamfin calculators below.
Common mistakes
- Choosing the longest tenure to minimise EMI without considering total interest paid.
- Not reading the prepayment penalty clause before making lump-sum repayments.
- Assuming home loan tax benefits apply under the new regime.
What to do next
Use the EMI calculator to model different tenures and see total interest. If you have a surplus, the home loan affordability calculator shows how much principal you can service comfortably.
Data sources checked
Data last checked: 2026-06-19
Disclaimer
This article is for general education only. It does not provide financial, investment, tax, insurance, lending, or legal advice and should not be used as the basis for financial decisions.