Definition
Principal is the original sum an association borrows, on which interest is charged and which is repaid over the loan term.
Why It Matters Financially
Principal, together with interest and term, determines an association’s payments. Tracking how payments reduce principal helps a board understand the loan’s progress and any payoff or refinance decisions.
Example Use Case
Each loan payment covers interest and a portion of principal, gradually reducing the amount the association owes.
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Related Terms
Amortization, Interest Rate, Loan Term, Debt Service, Balloon Payment