“Principal” is a core mortgage and loan term: it’s the original amount borrowed (or the remaining outstanding balance) not including interest. When you take out a mortgage, the lender advances a principal amount to buy the home; your monthly payment generally covers two pieces: a portion that repays principal and a portion that pays interest on the outstanding principal. Early in many mortgages, interest comprises a larger share of the payment; over time the principal portion increases as the outstanding balance shrinks. Understanding principal is essential for planning because extra payments applied to principal reduce future interest expense and accelerate equity-building. For example, a $10,000 extra payment applied to principal on a mortgage reduces the loan balance immediately and reduces interest accrual going forward — a powerful way to shorten the loan term or lower payments if you refinance. When comparing loans, look at the principal amount, the interest rate, and the repayment term together to see total cost and amortization behavior.

Practical actions tied to principal: when you make additional payments, instruct the servicer to apply them to principal (not interest or escrow) to ensure they reduce the balance. If you refinance, the new principal is the remaining balance plus any refinancing costs rolled into the loan; compare how these costs trade off against savings from a lower rate. Also, know that principal reductions affect equity — the homeowner’s ownership stake in the property — which matters for selling, home-improvement leverage, and avoiding PMI once a threshold is reached. For short-term planning, think about the principal balance as the determinant of required collateral value; for long-term planning, reducing principal early can materially cut lifetime interest. Finally, if you sell a house, proceeds first repay remaining principal on the loan; that’s why understanding the principal outstanding helps estimate net proceeds from a future sale.