Definition
The principal is the original amount of money you borrow on a loan — the purchase price minus your down payment. Your monthly payments slowly reduce the principal over time while also covering interest charges.
Example
If you buy a $350,000 home with a $70,000 down payment, your loan principal is $280,000. In early mortgage payments, most of your payment goes toward interest — the principal balance shrinks slowly at first, then faster toward the end of the loan.
How It's Calculated
Principal = Home Price − Down Payment
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