The principal, in the case of mortgages and other types of loans, is the amount of money borrowed and repaid by the borrower. Principal does not include interest or other fees charged by the bank or non-bank provider for providing the loan or credit. The principal amount is reduced (called amortised) with each regular mortgage payment.
Amortization
Closely related to the concept of principal is the concept of amortization. Interest is the portion of the regular loan repayment by which the unpaid principal balance is reduced in the case of an annuity. Thus, from each instalment of the loan, a certain amount goes towards the repayment of part of the principal balance and the remainder towards interest. Although the amount of the monthly instalment is fixed, the amount of the principal and interest changes with each instalment.
Practical example
Your mortgage payment schedule always shows not only the total monthly payment, but also the amount of interest and interest. For example, if the regular monthly mortgage payment is CZK 11,343, the repayments might look like this.
| Instalment number | Total repayment | Amortization | Interest | Principal balance |
| 1. | 11 343 | 6 306 | 5 037 | 2 753 694 |
| 2. | 11 343 | 6 317, 51 | 5 025,49 | 2 747 376,49 |
| 3. | 11 343 | 6 329,04 | 5 013,96 | 2 741 047,45 |
| 4. | 11 343 | 6 340,59 | 5 002,41 | 2 734 706,86 |
| 5. | 11 343 | 6 352,16 | 4 990,84 | 2 728 354,70 |
