What is the difference between interest and principal in a mortgage loan?
Outside of closing costs or origination fees, most loans can be broken down into two parts — principal and interest.
1. Mortgage Principal – Principal is the total amount of money borrowed for your loan. It can be calculated as the price of your home minus the down payment.
2. Mortgage Interest – The mortgage interest is the cost of borrowing the principal. It can be calculated as the amount you pay to the lender each month for the principal you borrowed to purchase your house.
Each monthly payment will go to both the interest and the principal until the entire principal amount has been paid off. Because your monthly mortgage payment is typically fixed, mortgage loans will be amortized over time.