Principal

Principal is the amount of money borrowed or invested, separate from any interest that accrues on top. A $400,000 mortgage starts with principal of $400,000; after one month of payments under standard amortisation, principal is roughly $399,670 (and the remaining $2,330 of the payment went to interest).

Two distinctions worth keeping straight:

• Original principal: the amount you borrowed at the start. Fixed for the life of the loan.
• Remaining principal (or outstanding principal / principal balance): the unpaid portion at a given moment in time. This is what interest is computed against each period.

For investments, principal means the original amount put in. “Principal-protected” investments guarantee that you won’t get less back than you invested (modulo issuer credit risk). “Return on principal” is the gain on the original amount, distinct from compound returns on accumulated gains.

For loans, principal-only payments are extra payments applied directly against remaining principal, bypassing the normal interest portion. They shorten the loan and reduce total interest paid. See our mortgage calculator for the math.