Principal vs Interest in a Mortgage
What is principal in a mortgage?
Principal is the actual amount of money you borrow from a lender to buy a home in Canada.
For example, if you buy a $700,000 home and put $100,000 down, your principal is about $600,000.
What is interest in a mortgage?
Interest is what the lender charges you for borrowing that money. It is calculated as a percentage of your remaining mortgage balance.
This means the more you owe, the more interest you pay.
How principal and interest work together
Every mortgage payment you make is split between principal and interest.
- Part of your payment reduces your loan (principal)
- Part goes to the lender as interest
You can see exactly how this works using the Mortgage Payment Calculator.
Why you pay more interest at the beginning
At the start of your mortgage, your loan balance is highest. Because interest is based on your balance, a larger portion of your payment goes toward interest early on.
As your balance decreases over time, less interest is charged, and more of your payment goes toward the principal.
On a $600,000 mortgage at 5%, your early payments might be mostly interest.
Years later, more of that same payment will go toward reducing your loan instead.
Why this matters (most people miss this)
In the early years of your mortgage, you are not building equity as quickly as you might think.
This is why:
- Selling early can mean less profit
- Refinancing too soon may not give you much equity
- Extra payments early can have a big impact
How to pay less interest over time
If you want to reduce how much interest you pay:
- Make extra payments toward your principal
- Choose a shorter amortization
- Consider biweekly payments
You can compare strategies using the Dual Scenario Mortgage Calculator.
Principal vs interest (simple summary)
Principal is your loan. Interest is the cost of borrowing it.
Early on, you pay more interest. Later, you pay more principal.
Understanding this helps you make smarter decisions about your mortgage and long-term costs.
Last updated: April 2026