The amount of money that you borrowed from the lender to buy your house is called the principal. It can also refer to the amount that has not yet been repaid to the bank or the lender.
The principal excludes the interest and other fees that may be added to the loan amount. When it is used to refer to the amount you owe minus the amounts you have already paid back to the lender, it is called the principal balance.
Since the interest is calculated based on the principal balance, making extra payments to reduce the principal at regular time intervals help lower your interest rates. You have to be wary of prepayment penalties (discussed below), though.
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