Principal

Principal

The principal refers to the actual balance of a loan, excluding any interest owed for borrowing the money. It is the original amount borrowed from the lender that must be repaid, along with any additional costs such as interest, insurance, and taxes. The principal amount is paid off gradually through monthly payments over the term of the mortgage.

The principal balance represents the amount remaining to be paid on the loan. As you make these payments, you build equity in your home. However, it’s important to note that mortgage payments (even on fixed-rate loans) are structured so that a larger portion of the early payments goes toward interest rather than the principal.

To pay off the loan more quickly, increase equity in the property, and minimize the amount of interest paid, many borrowers opt to make extra payments toward the principal balance each month, known as “prepayments.” It is estimated that making one additional monthly payment each year can reduce the overall loan term by about five years.

Understanding how your money is allocated within your mortgage payments is key to effectively managing your loan. The payment structure will affect the total cost of the mortgage and the amount of time it takes for you to fully own your home. By being informed about the principal and how it works within your mortgage, you can make better financial choices throughout the life of the loan.

Fannie Mae

Fannie Mae is a government agency that buys mortgages from lenders to help them reinvest. Its mission is to stimulate the U.S. mortgage market and increase affordable housing availability.

Freddie Mac

Freddie Mac is a government agency that buys mortgages from lenders. This helps lenders provide more loans, making homeownership more affordable for many people

Appraisal

When you apply for a home loan, the lender needs an appraisal to check the home’s value. An inspection and comparisons with similar homes nearby determine this.

FHA Refinance

Refinancing can be done with the current lender or a new one, replacing the mortgage with a new loan to secure lower rates or access home equity.

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