Principal

When you take out a mortgage, you borrow a specific amount of money to buy your home. That borrowed amount is called the principal. Over time, your monthly payments chip away at the principal — slowly at first, then faster as the loan matures.

In the early years of a mortgage, most of your payment goes toward interest, not principal. That's how amortization works. But every dollar that reduces your principal is real equity you're building in your home.