Understanding Principal: The Core of Your Mortgage Payment - RCB Bank

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Understanding Principal: The Core of Your Mortgage Payment

When you take out a mortgage, your monthly payment is typically divided into several components, including principal, interest, taxes and insurance. Among these, the principal is the core part of your loan repayment. Understanding how it works can help you better manage your mortgage over time.

The principal is the original amount of money you borrow from a lender to purchase a home. For example, if you buy a house for $300,000 and make a $50,000 down payment, your principal loan amount will be $250,000. This amount does not include interest or other fees associated with your mortgage.

Each monthly mortgage payment you make includes a portion that goes toward reducing the principal balance. In the early years of your loan, most of your payment goes towards the interest rather than principal due to how loans are amortized. Over time, as the balance decreases, more of your payment is applied to the principal.

The way the principal changes over the life of your loan depends on factors like your loan term and interest rate. Shorter loan terms or additional payments toward the principal can help reduce the balance faster and save on interest costs in the long run.

Understanding your principal and how it fits into your overall mortgage can empower you to make informed financial decisions. Paying extra toward the principal when possible is one strategy to pay off your loan faster and reduce total interest paid overtime.

Contact one of our Mortgage Representatives today to assist you in meeting your homeownership goals!

Opinions expressed above are the personal opinions of the author and meant for generic illustration purposes only. For specific questions regarding your personal lending needs, please call RCB Bank at 855-BANK-RCB. With approved credit. Terms, qualifications and other restrictions apply. Member FDIC, Equal Housing Lender. RCB Bank NMLS #798151.

Sources:

[1] How to Calculate Principal and Interest on a Mortgage Payment https://anytimeestimate.com/home-buying/principal-and-interest/

[2] Mortgage Principal: The Core of Your Home Loan Explained https://www.businessinsider.com/personal-finance/mortgages/mortgage-principal

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Choosing the Right Mortgage Term: 15 years or 30 years

The Role of Escrow Account in the Mortgage Process

Understanding Home Appraisals in the Home Buying Process

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