What is the principal in a mortgage context?

In the context of a mortgage, the principal refers specifically to the original sum of money that is borrowed or the remaining balance that is still owed on the loan. This is the amount upon which interest is calculated and represents the actual loan amount taken from the lender. As the borrower makes payments, a portion of each payment goes towards reducing this principal balance.

Understanding the principal is crucial for borrowers because it affects how much interest will be paid over the life of the loan. The interest rate is applied to this principal amount to determine the cost of borrowing. Therefore, knowing the principal helps borrowers understand their loan repayment dynamics, including how their payments impact the overall loan balance over time.

The other choices represent different aspects of a mortgage but do not define the term "principal." The total monthly payment includes both principal and interest, the interest rate applies to the principal to calculate interest costs, and the cost of the property is the purchase price, which may include but is not limited to the principal amount borrowed.