Financial Dictionary - Capital
In a mortgage loan, principal refers to the nominal amount of the loan excluding interest. In other words, it is the money that we ask to borrow from the bank to buy or refurbish a home.
Usually the bank finances up to 80% of the total value of the property, and the “down payment” or initial payment must cover the remaining 20%.
When we talk about principal we differentiate between:
- Outstanding principal: the remaining amount of the loan
- Principal repaid: the amount of the loan already repaid
What does amortising the principal of a mortgage mean?Amortisation of the mortgage principal consists of paying part of the amount owed to the bank before the due date.
How can I redeem the principal of a mortgage early?
When redeeming the principal of a mortgage early, you must consider all the factors in play.
- The mortgage can be amortised at any time. If you have a variable rate mortgage, it is important to take into account the value of the interest rates at the time of amortisation.
- Reduce payments or term? You can reduce the amount of the monthly payments or reduce the number of instalments. Choosing one or the other option will depend on each individual case.
- Tax benefits: although the tax break for buying a home ended in 2013, anyone who bought a home before that date will still be able to benefit.