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.
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