Process
Principal
The amount of money you borrow, or the portion of your balance still owed — separate from the interest charged on it.
What does principal mean?
Principal is the actual debt: the sum you borrowed to buy the home, and the balance that remains as you pay it down. Each mortgage payment splits between interest (the cost of borrowing) and principal (which reduces what you owe). Early in an amortizing loan, most of the payment is interest and little touches principal; that flips over time. Paying extra directly toward principal is powerful because it erases all the future interest that dollar would have accrued — the core reason a payoff or extra-payment strategy saves so much.
Common questions
What's the difference between principal and interest?
Principal is the amount you borrowed and still owe; interest is the lender's charge for lending it. Each payment splits between the two.
Why should I pay extra toward principal?
It erases all the future interest that dollar would have accrued, so extra principal — especially early — cuts years and thousands off the loan.
How do I make sure extra goes to principal?
Tell your servicer explicitly to apply it to principal, not prepay next month's payment. Confirm there's no prepayment penalty — conforming loans don't have one.
Related terms