Additional Principal Payment

When a borrower first acquires a loan, an amortization schedule is created showing how much principal and interest is required to be paid each month. When the loan term first begins, the payment will attack the interest at its highest. As the borrower continues to pay their monthly fee, the interest rate will decrease over time. During the loan term, the borrower can begin to pay off their loan before the maturity date. When this occurs, it is called an additional principal payment, as the borrower is paying off the lien amount rather than paying toward interest. However, over time, the additional principal payments will reduce the amount of interest paid.