Principal
Names and abbreviations on this page
CFPB — Consumer Financial Protection Bureau. United States regulator for consumer financial products.
Housing terms & practical skills
What it means
For a loan, principal is the amount borrowed or the outstanding balance still owed, depending on context. Interest is the charge for borrowing. Only the part of a payment applied to principal reduces that balance.
Related skills
Read statementsSeparate principal, interest and other charges.
Check reductionsCompare the balance before and after a payment.
Ask about extra paymentsConfirm how a servicer applies additional money.
An everyday example
If a simplified payment applies $300 to principal and $900 to interest, the loan balance falls by $300. Paying $1,200 does not mean $1,200 of new home equity has been created.
What to check
Taxes and insurance paid through the same bill do not reduce the principal. Check the statement's allocation rather than relying on the total payment.