Principal, interest, term & repayments
Here we explain a number of the basic terms and definitions used in home loans, mortgages and business finance:
“Principal” is the amount of money you borrow from the Lender when you take out a home loan, mortgage, or other finance.
“Interest” is the fee the lender charges you for the use of their money. The interest charge on your loan depends on the amount of money you borrow, the interest rate, and the term of the loan.
“Term” is the agreed period you have to repay your loan. For some loans, this could be a year or less, while for most home loans it is 25-30 years.
Over the term of the loan, you make repayments on a regular basis – typically monthly. These repayments generally cover the interest charge and a portion of the principal.
This is a scary sounding term but it’s just another way to describe the repayment of your debt. Over the term of the loan, your regular repayments are said to “amortise” the loan. To learn more about mortgages & home loans, talk us.
Source: The Mortgage and Finance Association of Australia (MFAA)