When you plan to choose a long tenure, such as 20 years, understanding how interest on a housing loan works is important because it helps you see how your EMIs are divided and how much interest you will pay over the tenure. A longer tenure may look comfortable but it increases the total cost of borrowing. Even a small difference in the total repayment amount can greatly affect the total repayment amount.
What is Interest on a Housing Loan and How is it Calculated?
Interest on a housing loan is the cost you pay for borrowing the loan amount. Your EMI is made up of principal and interest. Principal is the amount you borrow.
There are two types of interest rates: fixed and floating. A fixed rate stays the same throughout the loan tenure, while a floating rate fluctuates with market conditions.
Amortisation simply means how your home loan gets repaid over time. In the beginning, most of your EMI goes towards paying the interest and only a small part reduces the principal. As the years pass, this slowly changes and a larger portion of your EMI starts going towards the principal rather than interest.
What are Today’s Home Loan Interest Rates in India?
A common question that borrowers ask is: “What is the current interest rate for home loans?”. However, the current rate can vary depending on the lender, your CIBIL score, loan amount and employment type. A higher score helps you get a better rate because it shows good repayment behaviour.
Example: Interest You Pay on a ₹50 Lakh Home Loan for 20 Years
Let’s take a simple example using an interest rate of 8% p.a. So, a ₹50 lakh loan at 8% per year for 20 years would yield an EMI of about ₹41,822.
| Period | Months | Interest paid (approx) | Principal repaid (approx) |
| Years 1-5 | 1-60 | ₹1,885,599 | ₹623,721 |
| Years 10-15 | 109-180 | ₹1,410,147 | ₹1,601,037 |
| Years 16-20 | 181-240 | ₹446,725 | ₹2,062,596 |
So, by the 20th year, the total interest repaid is ₹50,37,281, while the total principal repaid is ₹50,00,000. Hence, you pay more in interest than principal.
Factors that Affect Interest on a 20-year Housing Loan
- Credit/CIBIL score: It influences the rate you are offered.
- Loan-to-Value (LTV) Ratio: This affects the risk and rate.
- Bank and NBFC: Each bank or NBFC’s rate differs from that of another.
- Type of interest: It can be fixed, floating or hybrid.
How to Reduce the Total Interest on Your Home Loan?
- Use pre-payments as and when possible to save interest.
- Compare bank home loan rates before choosing a tenure.
- If possible, select a shorter tenure or higher EMIs.
- Consider refinancing or a balance transfer when current home loan interest rates fall.
Amortisation Explained: How interest Decreases Over Time
An amortisation schedule shows how your EMI changes over time. Early years are interest-heavy because the outstanding balance is high. Eventually, as the balance decreases, the interest portion naturally drops. You can easily check your amortisation schedule using a home loan EMI calculator.
PNB Housing, a financial institution, offer housing loans with competitive interest rates. It also provides online tools to help you plan repayments and understand your amortisation schedule.
Understanding how interest on a housing loan adds up over 20 years helps in better financial planning. If you regularly compare bank home loan rates, make prepayments and carefully study your amortisation schedule, your repayment journey will be much easier. Take the help of an EMI calculator or amortisation schedule to stay on track.
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