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What is a ‘Principal Only’ payment on your Home Mortgage?

Wednesday, October 26, 2022   /   by Sonya Reiselt

What is a ‘Principal Only’ payment on your Home Mortgage?

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When you purchase a home and secure a mortgage through a lender, you are paying several components of that mortgage.

1.       The principal- the amount of the loan needed to purchase the home.

2.       Interest on that loan- a monthly interest payment calculated on the interest rate accessed to the loan.

3.       If you put down less than 20% you are also paying PMI (private mortgage insurance)

4.       Property Taxes

5.       You may also have your Homeowners Insurance tied into the loan as well and pay a monthly premium for that.

These 5 components make-up your monthly mortgage payment. However, the principal component of the mortgage represents the amount of equity you accrue each month and essentially ‘buy-back’ from your mortgage lender.

If you currently have a 30-year mortgage, and never make any additional payments, it will take you 30 years to pay off the mortgage in full and pay the full amount of interest associated with the mortgage. For example, a $350,000 loan with a 5% interest rate would be $17,500 a year paid in interest alone!!!

By making a principal only payment, in addition to your monthly mortgage payment, you are paying down the principal amount of your mortgage quicker. If you were to pay a $100 principal only payment today at the 5% interest rate, you’ll save $332 over the 30 years. Now imagine doing that every month, or more if you can. It will put equity in your pocket much quicker, pay off the principal and loan faster and save your thousands of dollars in interest over the course of your loan.

There is a difference between making an additional payment monthly and a principal only payment, so if you’re making a principal only payment for the first time, call your lender and find out how to do it correctly with them so it is applied to your loan appropriately. And remember, this NEVER takes the place of your regular monthly loan payment.  Your regular monthly payment must always be made on time every month.  Any questions regarding your loan should always be directed to your lender.

Are you looking for a home in the beautiful Lowcountry right now? I’m ready to help you find it! I also work with the best mortgage loan officers if will help you secure the right mortgage loan to suit your needs. Providing you the full services you require is important to me and I will be with you every step of the way from pre-qualification to closing and beyond.  If you’re ready to begin the exciting home buying journey, reach out!  Sonya- 843-321-2158.


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The Homesfinder Realty Group 208 Carteret St Beaufort, SC 29902
Sonya Reiselt
208 Carteret Street
Beaufort, SC 29902

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