The principal of a mortgage refers to the loan amount borrowed or outstanding without including interest and other charges.

It is also sometimes referred to as the principal balance.

Typically, a mortgage payment would make up of principal plus interest.

And when a borrower wants to prepay the loan, the amount repaid is used to offset the principal.

This means that if a loan has 120 months of $1,000 payments left, should the home owner fully repay the loan, he will not be paying $120,000.

This is because the $1,000 payment consists of principal and interest.

The actual amount for full prepayment will be considerably less than $120,000.