What is the capital amount borrowed on which interest payments are calculated in a mortgage loan?

The principal refers to the initial amount borrowed in a mortgage loan on which interest payments are calculated. This is the core part of the loan that the borrower agrees to pay back, and it does not include interest or any fees associated with the loan. In the context of a mortgage, understanding this concept is crucial because it directly impacts the calculation of monthly payments and the overall cost of borrowing.

While the loan balance can fluctuate over time as payments are made, the principal represents the starting figure upon which all interest calculations are based. The interest rate is the percentage imposed on the principal amount to determine the cost of borrowing, but it is not the amount itself. The grace period refers to a time frame during which payments can be made without penalties, which does not determine the capital amount borrowed. Consequently, identifying the principal is essential for understanding the financial responsibilities entailed in a mortgage agreement.