Payments
Principal is the amount you actually borrow, before any interest. Each mortgage payment splits between principal and interest, and early on, most of it goes to interest. As the years pass, more of each payment chips away at the principal, which is how you slowly build equity in your home.
If you borrow $397,664, that’s your starting principal. Interest is the cost of borrowing it, charged on whatever balance is left. In the early years, your balance is large, so most of your payment is interest and only a little goes to principal.
Over time that flips, and more of each payment goes toward the balance. That slow shift is called amortization, and it’s the engine that builds your equity. Paying a little extra toward principal when you can shortens the loan and cuts total interest.
Amortization is how your loan gets paid off over time through regular payments. Early on, more of each payment goes to interest and less to principal. As the years pass, that flips, and more goes toward the balance. By the end of the term, the loan is fully paid off.
PITI stands for the four parts of a typical mortgage payment: principal, interest, taxes, and insurance. Principal and interest pay back the loan, while taxes and insurance are often collected in an escrow account and paid for you. Lenders look at your full PITI, not just principal and interest, when they decide what you can afford.
Home equity is the part of your home you actually own: its current value minus what you still owe on the mortgage. If your home is worth $400,000 and you owe $300,000, you have $100,000 in equity. It grows as you pay down the loan and as the home's value rises, and you can sometimes borrow against it.
Last updated: June 13, 2026
This definition is educational and isn't an offer to lend or financial advice. Rates, programs, and guidelines may change without notice. All loans are subject to credit and property approval.
I'll walk you through what it means for you, in plain English. No rate quote and no pressure.
Talk to Niko