Principal Balance Definition

For any loan, including mortgages, the principal balance is the amount due to satisfy the loan. The principal balance will not always decline on a loan because new charges, accrued interest, and any fees typically are added to the principal during each billing cycle. Note that when paying off a loan, the principal balance is usually slightly more than the principal because of daily interest which may have accrued on the account. On interest-only loans, the principal balance-by design-does not decrease.