What is a mortgage?
A mortgage is a loan secured by real estate. You borrow most of the property's price from a bank, repay it in fixed monthly instalments over 10–30 years, and the property itself is collateral — if you default, the bank can seize and sell it. It's the single biggest loan most people will take in their lives, and the difference between a smart and a sloppy mortgage decision is often a 7-figure number over the loan's lifetime.
How is a mortgage EMI calculated?
The reducing-balance EMI formula:
EMI = P × r × (1 + r)^n / ((1 + r)^n − 1)
where:
P= principal (loan amount, not property price)r= monthly interest rate (annual rate / 12 / 100)n= total number of months (years × 12)
The principal is what you actually borrow — property price minus your down payment. Banks calculate EMI on the principal, not the property price.
Worked example: ₹75 lakh property in Mumbai
Buyer's situation:
- Property price: ₹75,00,000
- Down payment: 20% = ₹15,00,000
- Loan amount: ₹60,00,000
- Interest rate: 8.5% per annum (floating)
- Tenure: 20 years
| Step | Value |
|---|---|
| Principal | ₹60,00,000 |
| Monthly rate | 0.007083 (8.5% / 12 / 100) |
| Months | 240 |
| Monthly EMI | ₹52,068 |
| Total paid over 20 years | ₹1.25 crore |
| Total interest | ₹65,06,259 |
| Out-of-pocket total | ₹15 L (down) + ₹1.25 cr (EMI) = ₹1.40 crore |
To buy a ₹75 lakh property, you end up paying ₹1.40 crore. ₹65 lakh of that is just bank interest. This is the headline number every mortgage decision should start with.
Components and inputs explained
Property price
The agreed sale price. Not the circle rate, not the broker's quote — the price on the registered sale agreement.
Down payment
What you pay upfront. Standard: 10–25%. Sweet spot: 20%.
- Below 10%: bank may need extra fees (PMI / higher rate)
- 20–25%: best rates, comfortable balance
- Above 30%: leaves cash idle; consider investing the excess instead
The Down Payment calculator helps you balance LTV (loan-to-value) against your liquidity.
Loan amount
Property price minus down payment. The bank may add processing fees (0.5–1%) to this — usually paid separately, not added to principal.
Interest rate
Two flavours:
- Floating (most common): linked to bank's MCLR or repo rate. Adjusts quarterly.
- Fixed: locked for 3–5 years usually, then converts to floating.
In India (mid-2025): 8.4–9.5% for prime borrowers. Government schemes (PMAY, low-income housing) may offer 0.5–1% below this.
Tenure
Most mortgages: 15–30 years. Shorter saves interest; longer reduces monthly burden.
Tenure tradeoff (₹60L principal at 8.5%)
| Tenure | EMI | Total interest | Total paid |
|---|---|---|---|
| 15 years | ₹59,083 | ₹46.4 L | ₹1.06 cr |
| 20 years | ₹52,068 | ₹65.0 L | ₹1.25 cr |
| 25 years | ₹48,272 | ₹84.8 L | ₹1.45 cr |
| 30 years | ₹46,127 | ₹1.06 cr | ₹1.66 cr |
The 30-year option saves ₹13,000/month vs the 15-year — but costs ₹60 lakh more in interest. The shorter tenure you can comfortably afford is almost always the right choice.
Common types
| Type | Where you'll see it |
|---|---|
| Conventional home loan | Default; for own-use property |
| Loan against property (LAP) | Borrow against existing property; lower rate but lower max LTV |
| Construction loan | For under-construction property; pre-EMI on disbursed amount |
| Plot loan | For buying land only (higher rate, shorter tenure) |
| Home renovation loan | Up to 70% of estimated cost |
| PMAY-CLSS (subsidized) | Government interest subsidy for EWS/LIG/MIG buyers |
| NRI home loan | Repaid from NRO/NRE; tighter eligibility |
Prepayment — the highest-ROI move you can make
Prepaying a chunk in the early years has massive interest-saving leverage. Examples on ₹60L / 20yr / 8.5%:
- ₹1 L prepayment in year 2 → ~₹4 L interest saved + 8 months earlier payoff
- ₹5 L prepayment in year 3 → ~₹17 L interest saved + 2.5 years earlier
- Extra ₹5,000/month from year 1 → ~₹13 L interest saved + 4 years earlier payoff
On floating-rate housing loans, RBI bans prepayment penalties. Use the Mortgage Payoff calculator to model your specific scenario.
Considerations
- 40% rule: keep total EMI commitments (housing + car + other loans) under 40% of net monthly income. Banks will sanction up to 65%; that's the path to "house poor".
- Buy or rent? In most Indian metros, buy if you'll stay 8+ years AND rental yield is < 3% of property value. Use the Home Loan vs Rent calculator for your numbers.
- Loan-to-value (LTV): stay below 80% for best rates. Above 80% is allowed but pricier.
- Co-applicant: adding a working spouse can increase eligibility AND give both partners separate Section 24(b) + 80C deductions.
- Closing costs: stamp duty + registration (4–8% of property value) is on top of the loan. Plan for this separately. Use the Stamp Duty calculator.
Tax benefits (India, old regime)
| Section | Benefit | Cap |
|---|---|---|
| 80C | Principal repayment | ₹1.5 lakh / year |
| 24(b) | Interest paid on self-occupied home | ₹2 lakh / year |
| 24(b) | Interest on let-out / rented property | Uncapped (against rental income) |
| 80EEA | First-time buyer, loan < ₹35 L, property < ₹45 L | Additional ₹1.5 lakh |
New regime: zero home-loan deductions. If you're paying significant interest, the old regime usually wins. Confirm with the Regime Compare calculator.
Limitations
- The calculator uses a single fixed rate. Real floating-rate loans reset quarterly.
- It doesn't model PMI / mortgage insurance for low-LTV loans.
- It doesn't include property tax / society maintenance / home insurance (factored separately on real mortgages — Calculator.net's tool shows a combined "Total Out of Pocket" view).
- It doesn't model prepayment penalty on fixed-rate loans (typically 2–4% in early years).
Related calculators
- EMI Calculator — same math, generalized for any loan type
- Amortization Schedule — full month-by-month breakdown of principal vs interest
- Mortgage Payoff — model the impact of extra payments
- Refinance Calculator — break-even on switching banks for a lower rate
- House Affordability — work backwards from your income to a max property price
- Home Loan vs Rent — should you even buy?
- Down Payment — figure out your loan amount and LTV
- Stamp Duty — registration + stamp duty for your state
Final note. A mortgage isn't a financial product — it's a 20–30 year relationship with a bank. Most "mortgage advice" focuses on the monthly EMI. The decisions that actually matter are tenure, prepayment discipline, and the buy-vs-rent baseline. Run those three calculators before you sign the term sheet, not after.
