# How to Calculate EMI on a Loan

EMI is commonly used for mortgage payments.

EMI in borrowing terms stands for equated monthly installment, which is the set payment that you must make every month over the term of the loan. When you take out an EMI loan, the EMI is set based on the interest rate, size of your loan and term of repayment. Each month, part of the EMI goes towards paying off the interest that accrues on your loan and whatever is left pays down the balance of the loan. These portions change over the life of the loan, but the monthly payment does not.

## Step 1

Multiply the amount borrowed by the periodic interest rate. For example, if you borrowed \$305,000 and the monthly interest rate equals 0.0065 (or 7.8 percent per year), you would multiply \$305,000 by 0.0065 to get \$1,982.50.

## Step 2

Multiply the number of years in the term of the loan by 12 to calculate the number of monthly payments you will make on the loan and call the result P. For example, if you took out a 25-year loan, you would multiply 25 by 12 to get 300 monthly payments.

## Step 3

Plug in P, the number of monthly payments over the life of the loan, and R, the periodic interest rate, into the following expression: 1 - (1+R)^-P. In this example, you would plug in 0.0065 for R and 300 for P so your expression would be 1 - (1 + 0.0065) ^ -300, or 0.85682532.

## Step 4

Divide the result from step 1 by the result from step 3 to calculate your equated monthly payment. Finishing this example, you would divide \$1,982.50 by 0.85682532 to find your EMI would be \$2,313.77.

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