| Month | EMI | Principal | Interest | Balance |
|---|
EMI formula: EMI = [P × r × (1+r)^n] ÷ [(1+r)^n − 1] where P = principal (loan amount), r = monthly interest rate (annual rate ÷ 12 ÷ 100), n = loan tenure in months.
Example: For a home loan of AED 500,000 at 5% annual interest for 20 years: r = 5/12/100 = 0.004167, n = 240 months. EMI = AED 3,300/month. Total payment = AED 792,000. Total interest = AED 292,000 (58% of principal).
Amortization: In the early months, most of your EMI goes toward paying interest — this is because interest is calculated on the full outstanding principal. As you repay the principal, the interest portion decreases and the principal portion increases.
Tips to save on interest: Making even one extra EMI per year can reduce your loan tenure by 2–4 years. Refinancing when interest rates drop can save significant amounts. Even rounding up your EMI slightly (e.g. paying AED 3,400 instead of AED 3,300) accelerates repayment.