Principal is the amount of money borrowed. Principal is another word for mortgage balance. It also refers to the part of your payment that goes to pay down the mortgage balance.

Principal Defined

A fully amortized mortgage payment has 2 parts:

1. One pays the interest due to the lender who loaned you the money

2. The other goes to pay down and eventually pay off your mortgage.

You hear P&I payment often when shopping for a mortgage. P is for principal and I is for interest.

You may wonder why your mortgage balance doesn’t go down very fast even though each month money is going to liquidate it. In the beginning stages of your mortgage, the amount that goes to pay down the mortgage is much smaller than the amount going to pay the interest.

To learn more about amortization is this Glossary term - Amortization.

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