Principal
Principal is the original amount of money borrowed in a mortgage, not including interest, taxes, or insurance.
Each monthly mortgage payment includes a portion that goes toward reducing the principal balance. Over time, as the principal decreases, a larger share of each payment goes toward principal and a smaller share goes toward interest — this is the amortization process.
Principal is not the same as your total loan cost. The total amount you pay over the life of a mortgage includes both principal and interest. Paying extra toward principal accelerates equity growth and reduces total interest paid.
Why This Matters: Every dollar you pay toward principal builds equity in your home. Understanding the relationship between principal and interest helps you see the long-term value of extra payments and smart refinancing decisions.
Common question
What is principal on a mortgage?
Principal is the amount you borrowed — the loan balance. Each payment includes principal and interest; as you pay down principal, you build equity.
Should I make extra principal payments?
Extra principal payments reduce your balance faster, build equity, and lower total interest over the life of the loan. Check that your lender applies them to principal and does not charge a prepayment penalty.
Related Topics
Related Mortgage Terms
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