What Is Principal?
The original loan amount or the remaining balance you owe, separate from interest.
Definition
Principal is the actual money borrowed, before interest. On a $300,000 mortgage, your principal starts at $300,000 and decreases each month as you make payments. Each loan payment splits between principal (which reduces what you owe) and interest (which goes to the lender). Early in the loan, most of your payment is interest; later, most goes to principal. Paying extra toward principal reduces your total interest and shortens the loan.
Example
Month 1 of a 30-year, $300,000 loan at 6.5%: monthly payment $1,896, of which $1,625 is interest and only $271 is principal.
Use It
Try the Amortization CalculatorRelated Terms
AmortizationThe schedule by which a loan is paid off in equal payments, with shifting principal/interest split.Interest RateThe percentage a lender charges to borrow money, or that a bank pays on a deposit, per year.LTV (Loan-to-Value Ratio)The loan amount divided by the property's appraised value, expressed as a percentage.