Financial Calculators
Interest Rate Change Impact Calculator
Your bank raised the rate and kept the EMI the same. That was not a favour.
EMI rises by
₹1,778 a month
₹39,390 becomes ₹41,168 if the tenure stays 180 months
- Extra interest, same tenure
- ₹3,20,060
- If you keep the old EMI, tenure becomes
- 16 years 7 months
- Extra months
- 19
- Extra interest, same EMI
- ₹7,48,402
Banks usually respond to a rate change by stretching the tenure, not the EMI, because it is painless for the borrower today. It is also far more expensive, as the second set of figures shows. Ask for the EMI to be revised instead, or prepay the difference.
These figures are for illustrative purposes only and are not investment advice. Please consult your investment adviser for investment related advice.
Two ways to absorb a rate change
When the rate on a floating loan moves, the bank can either change your EMI and keep the tenure, or keep your EMI and change the tenure. Most default to the second because nothing changes in your bank statement. But holding the EMI while the rate rises means more of each payment goes to interest, the principal shrinks slower, and the loan runs months or years longer. The extra interest is often several times the amount the EMI would have risen by.
The same arithmetic runs in reverse when rates fall: ask for the tenure to be cut rather than the EMI, and the saving is much larger.
Same tenure or same EMI
Same tenure: new EMI = P x i' x (1+i')^n / ((1+i')^n - 1)\nSame EMI: new n = -ln(1 - P x i' / EMI) / ln(1 + i')\n(infeasible if the EMI no longer covers the first month's interest)Worked example: Rs 40,00,000 outstanding at 8.5% with 180 months to go has an EMI of Rs 39,390. If the rate rises to 9.25% and the tenure stays 180 months, the EMI becomes Rs 41,168, Rs 1,778 more, and Rs 3,20,060 more interest in total. If the EMI is held instead, the tenure stretches to 199 months, 19 extra, and the extra interest is Rs 7,48,402.
Frequently asked questions
Can I ask the bank to change the EMI instead of the tenure?
Yes. Under current guidelines borrowers must be given the choice at a rate reset. Ask in writing; the default is usually tenure extension.
Why does the same-EMI path cost so much more?
Because every extra month is a month of interest on a balance that is falling more slowly. The rise in EMI is a small fixed cost; the extension is a compounding one.
The calculator says not possible. What does that mean?
At the new rate, your old EMI does not even cover one month's interest, so the loan would never end. The EMI must rise.
Should I prepay instead?
Prepaying the monthly difference achieves the same effect as raising the EMI, with more flexibility. The Loan Prepayment calculator shows the interest saved by a fixed extra amount each month.
Absorb the hike in the EMI, not the tenure.
We help clients renegotiate resets, prepay smartly and, where it pays, move the loan.