Principal
Definition
Principal is the amount of money you actually borrowed and still owe, separate from the interest charged for borrowing it.
How it works
Every regular mortgage payment is split in two. One part covers the interest accrued since the last payment; the remainder reduces the principal. Only the principal portion increases your ownership of the home.
That split shifts over time. Early in an amortization most of the payment is interest, because interest is charged on a large balance. As the balance falls, the interest portion shrinks and the principal portion grows, which is why progress accelerates in later years.
This is also why extra payments are so effective: a lump sum applies entirely to principal, removing all the future interest that balance would have generated.
Quick facts
- Principal is the borrowed balance, not the interest.
- Early payments are interest-heavy; later payments are principal-heavy.
- Lump-sum prepayments reduce principal directly.
Put this into practice
Still have questions about principal?
Call for a free, no-obligation conversation about your situation.
(604) 780-5173