What is the Floating Rate EMI Calculation formula?

Unlike fixed rate loans, floating rate loans have interest rates linked to an external benchmark such as the repo rate. When the benchmark rate changes, your interest rate and EMI also change.

Floating rate EMIs are calculated based on the following formula:

EMI = [P x R x (1+R)^N]/[(1+R)^N-1]

Where,

• P is the loan amount
• N is the total tenure in months
• R is the monthly interest rate, which is the annual floating interest rate divided by 12

For example, if you have a floating rate home loan of ₹30 lakhs for 20 years at an 8% annual interest rate, the monthly interest rate (R) is 8/12 = 0.67%. With a tenure of 20 years or 240 months (N), the monthly EMI is calculated as:

EMI = [30,00,000 x 0.67% x (1+0.67%)^240]/[(1+0.67%)^240-1] = ₹25,093 (approximately)

So, in a floating-rate loan, the EMI amount is recalculated every time the benchmark interest rate changes. Your EMI payment will go up or down accordingly.