Principal

Principal is the amount borrowed, or the remaining balance on a mortgage or loan.  When making a monthly mortgage or loan payment, a portion of the money is directed towards paying down the principal, in addition to the interest rate charged for use of the money.  In the early stages of a mortgage, a larger proportion of the monthly payment is used to pay for interest charges.  Later in the life of the loan, a larger proportion is directed to principal.

A 30 year loan of $100,000 at 6% interest rate would require a monthly payment of $599.55.  In the first month, $500.00 of the payment is to pay the interest expense, and $99.55 is used to pay down the principal.

In the 25th year of the loan, the monthly payment would still be $599.55.  However, with an outstanding principal balance of only $31,000 on the loan, $442.28 of the payment goes towards principal pay down, and only $157.27 is needed to pay the interest expense.