When a loan is used for purchasing an home, you will have a reoccurring payment for repaying the loan. That loan payment is typically broken down into two parts, principal and interest. Your principal is simply the amount owed at a given time. For example, if a home cost $100,000 and your put down 20% cash, your loan would be created of $80,000. $80,000 would be your principal balance. When you make a your payments, your principal balance is reduced. The interest part of your payment is what the lender charges annually to loan you the money. Many lenders require an escrow account be created with the loan and you pay your principal, interest, taxes, and insurance in your monthly payment. This is commonly referred to as your PITI payment.