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An EMI is an equated monthly instalment. An EMI is an outstanding loan spread across a stipulated tenure. This part becomes the monthly payable by the borrower throughout the stipulated time frame.

The EMI is dependent upon various factors such as:

Principal amount borrowed

Rate of interest (fixed or floating)

Loan tenure

Monthly or annual resting period

The EMI remains fixed in the case of fixed interest home loan and is subject to payment default or intermittent payments. The EMI actually constitutes part of the principle amount borrowed and the interest on the borrowed sum. Starting from the first EMI where the interest component is higher and the principle component is lower gets gradually shifted to higher principle amount and lower interest till the last EMI.

If in case the borrower makes any intermittent payments before the loan tenure is lower subsequent EMIs get reduced or the loan tenure gets reduced or it might be a mix of both. And the reverse process happens when a borrower skips an EMI either due to dishonour of checks or insufficient funds in case of auto deduction. The balance EMI might increase or the number of EMIs can go beyond the loan tenure or might be a mix of both. Also skipping of an EMI means inviting financial penalty if any.

In the case of floating home loans if the rate of interest reduces during the tenure of the loan the subsequent EMIs might get reduced or the number of EMIs to be paid will be reduced or a mix of both. And the reverse happens when there is an increase in the rate of interest leading towards increase in the number of EMISs or increase in the EMI or a mix of both.

Whether fixed or floating the first EMI outgo, the interest rate component is the highest and the principle rate is lower gradually leading to the last EMI where the interest component is smaller and the principle rate is higher. In case of a housing loan the EMI which is paid throughout the year is summed up at the end of the financial year and the impact of tax benefits are calculated which can be availed by the borrower.

Regular default of EMIs would lead to severe action by the lenders and the CIBIL score of the borrower is directly affected impacting the credibility of the borrower for any future loans or credit cards. A good part of the EMI is that the borrower knows exactly the amount which he needs to pay which will enable his financial planning or plan a cash outflow on a particular day of every month.