What is mortgage principal?

The term “mortgage principal” refers to the initial amount of money you borrow from a lender to buy a property. In other words, if you were buying a house priced at £200,000 and you had a deposit of £50,000, you would need to borrow £150,000 from the lender. This £150,000 is known as the mortgage principal.

If you have a repayment mortgage, your monthly mortgage payment is divided between two main parts: a portion that goes towards paying off the principal and a portion that goes towards paying the interest charged by the lender. Over time, as you make your regular payments to your mortgage, the principal amount will decrease.

In the earlier stages of your mortgage, most of your monthly payment goes towards interest. However, as you continue to make payments the principal amount decreases and an increasing portion of your payment will go towards reducing the principal.

As you pay down the principal of your mortgage, you reduce the amount you owe, which, all other things being equal, increases your ownership stake in the property. This process is often referred to as building equity in your home.

How can I pay off my mortgage principal faster?

Some lenders will allow you to make overpayments to your mortgage, either as a one off lump sum, or through increased monthly payments. Usually up to a maximum of 10% of the principal each year.

Making overpayments helps reduce the principal faster, as any overpayment will go directly to paying down the remaining principal. This not only helps you pay off your mortgage sooner but also substantially reduces the total amount of interest you’ll pay over the life of the loan.