Principal

A mortgage loan is usually paid back in installments--typically once a month. This method of payment is called amortization (am-ert-i-zation). Because amortization spreads the loan into several installments over a period of time, it reduces the debt gradually. The mortgage payment is comprised of principal, interest, and fees. Principal is the part of the mortgage that pays the cost of the home. Interest is the cost of borrowing the money. For the first few years, most of the mortgage payment goes towards the interest and a smaller portion goes towards the principal. The more money that goes towards the principal, the more equity, or ownership, is built. For more information on principal, contact a real estate professional.