The original loan amount borrowed — or the remaining balance still owed on the loan, separate from interest.
Full Definition
Principal refers to the actual loan amount you borrowed and still owe. When you make a mortgage payment, it's split into principal (the amount reducing your balance) and interest (the lender's fee for the loan). In a standard amortizing mortgage, each payment chips away at the principal, until the final payment brings the balance to zero. Making additional principal payments above your required monthly payment reduces your loan balance faster, shortens the loan term, and saves significant interest over time. Your loan servicer's monthly statement shows your current principal balance and the principal/interest split of each payment.
Related Terms
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