Discover how principal repayment works, the benefits of principal-only payments, and how it affects loan interest and equity growth.
In the context of loans and mortgages, the "principal" refers to the original sum borrowed from a lender that must be repaid. It does not include interest or any other charges that may apply over the life of the loan. The principal amount decreases over time as the borrower pays the loan.
The principal is a foundational concept in lending. It represents the core debt obligation that borrowers work to repay over the life of a loan. Managing principal repayment effectively can lead to significant savings and faster debt reduction.
An amortization schedule outlines how loan payments are divided between principal and interest over the loan term, showing the gradual reduction of the principal balance with each payment.
Check for any prepayment penalties associated with your loan and consider your overall financial situation, including whether you have higher-interest debt that could be a priority.
Yes, increasing the frequency of payments (e.g., switching from monthly to bi-weekly) can lead to faster principal reduction and interest savings, as you'll effectively make an extra payment each year.
Subscribe to our monthly newsletter for up-to-date real estate industry trends, news, and insights.