# Principal

Mortgage Dictionary -> Principal

It's rare that someone can buy a home outright. Most homeowners require financial assistance in the form of a mortgage. If you're like the majority of homeowners, you probably find yourself in a mortgage and are wondering about the many different terms of your mortgage. One that you may be seeing quite frequently is that of **principal**. In this article, you'll find out what the principal is, what affects it and how to pay it down faster.

## What is the Principal?

The principal is simply the amount of money that is left on the loan. When you get a mortgage, the principal is initially the entire amount you borrowed. However, overtime, the principal decreases. If, for instance, you have a mortgage that is valued at $120,000 and you've already paid $40,000 on it, your mortgage principal would be $80,000.

## What Effects Principal?

Lowering your principal by a specific amount is not as simple as just paying that amount. Rather, you must pay that amount plus any interest that applies. If you have a mortgage that is valued at $150,000 with an interest rate of 5% a year spread out over 30 years, you'll be paying much more than $150,000 for the house after interest is included. The only way, then, to touch the principal is to pay at least the interest and then some. All mortgage lenders set-up the repayment plan to do just this.

## How to Pay Principal Down Faster

Some homeowners do not want to be paying monthly payments for 30 years. The solution for them is to pay down the principal of the loan faster. This is actually quite simple but does, of course, require more money. If you're currently paying $1000 a month on your mortgage, you may consider upping this to $1200 a month, as you'll be paying an extra $2400 per year towards the principal. This can cut down on the life of your loan pretty good, and may even allow you to pay it off in only 24 or 25 years.