Principal
The portion of your mortgage payment that goes toward reducing the loan balance, separate from interest.
Every monthly mortgage payment on a standard amortizing loan splits between principal and interest. In the early years of a 30-year loan, the split is dramatically tilted toward interest, most of the payment is rent on the borrowed money, with only a sliver going to balance reduction.
The split shifts gradually over time. By the back half of the loan, more of each payment goes to principal than interest. This is why prepaying small amounts in the early years has an outsized effect, every dollar of early principal payment removes years of compounding interest from the loan's life.
Your monthly statement breaks down each payment into the principal and interest components. Watching the principal portion grow month over month is one of the more concrete signals of progress in long-term financial planning.
Related terms
Other terms you'll see alongside Principal
The schedule by which a loan balance is paid down over time through regular payments of principal and interest.
The percentage of the loan balance the lender charges as the cost of borrowing, paid annually but accrued daily.
Any payment made toward the loan balance beyond the scheduled monthly principal amount.
The four components that make up a typical fully-escrowed monthly mortgage payment.
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