What Is Principal?
Principal is the original amount of money you borrow from a lender to buy a home. It does not include interest, taxes, or insurance — just the loan itself. As you make monthly payments, a portion goes toward reducing your principal balance.
Key Facts
- Your principal is the home price minus your down payment.
- Early in the loan, most of your payment goes toward interest — not principal.
- As your loan matures, more of each payment chips away at the principal.
- A larger down payment means a smaller principal and less interest over time.
Real-World Example
You buy a home in Salinas for $650,000 and put 10% down ($65,000). Your principal — the amount you borrow — is $585,000. Over a 30-year loan, you'll gradually pay that down to zero.
Why It Matters
Your principal determines how much interest you'll pay over the life of the loan. A lower principal means lower monthly payments, less total interest, and faster equity growth. Every extra dollar you put toward principal saves you money long-term.
En Español
El principal es la cantidad original de dinero que pides prestada a un prestamista para comprar una casa. No incluye intereses, impuestos ni seguro — solo el préstamo en sí. A medida que haces pagos mensuales, una parte se destina a reducir tu saldo de principal.