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A Principal is the initial amount of money that is invested, borrowed, or lent. On the first day that an investor takes a mortgage loan for a property, the stated mortgage value is equal to the Principal amount. The key elements of a loan are specifically the Principal and interest. The interest is calculated by multiplying the Principal balance at the beginning of the compounding period times the stated interest, divided by the number of compounding periods in a year. If an interest payment is not made at the end of the compounding period, the interest is then added to the Principal. If a Principal payment is made at any time then the Principal balance is being reduced. Traditionally, mortgages were established with an amortization table calculated to pay a combined fixed payment each month with a Principal payment element and an interest payment element. The monthly payment on a fully amortized loan initially includes a high percentage of the total payment as an interest payment and the balance as a Principal payment. Over the course of the mortgage, the percentages eventually balance and then reverse percentages between Principal and interest payments as the Principal amount is paid down. Now there are a variety of payment plans to choose from, each with a specified number of payments per year and number of years to pay off the loan. The are also mortgage products with escalating payments, others with interest only payments and the Principal balance due at the end of the loan. A short sale is when the institution holding the mortgage accepts less than full Principal balance as satisfaction of the loan.

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