Principal

When speaking of a mortgage balance, the amount of the payoff is called the principal balance. The borrower makes a payment on a schedule put in place at the time of the original loan. This is usually a monthly payment including principal, taxes, interest and insurance. The principal is reduced each time a payment is made. Some lenders allow flexible payments each month, which could reduce the principal quicker than the original term. For instance, a 30-year loan could be paid off in fifteen or twenty years by paying extra principal each month or lump sum payments each year. Paying the regular monthly amount and adding $100 extra is an excellent way to reduce the principal. Alternatively, make two payments per month at one-half the regular amount each time. Reducing the principal quicker than on the original schedule lowers the interest due in subsequent months. This will payoff the loan quicker and save thousands in interest.