I have been doing some research on home loans of late. I am really confused about the way banks calculate EMI. Let me explain this with an example: Say I want a loan of 10 lacs and the interest rate is 9.25% p.a (fixed) for 20 years. So, by calculation the total amount i need to pay shall be: Principal: 10 lacs Interest: 18.5 lacs Amount: 28.5 lacs
So, if I simply divide this across 20 yrs and 12 months each ryr, then the EMI would be: 11875
Instead banks have charts which says that for every 1 lakh loan (interest being 9.25) the EMI would be 9200. This is less than my simple calculation.
I understand that as one pays out EMIs the principal reduces and banks take into consideration all such factors. But this process of arriving at a constant EMI (in this cae 9200) is never transparent to the customers.
Can anyone point out how all this calculation is done. Any site where I can learn this?