If a borrower were to take a $200,000 loan from their bank to buy a home, the principal amount of the loan would be $200,000. If this borrower pays off $20,000 in the first year of their loan amortization period, the remaining $180,000 left to repay is also called the loan principal. As the loan principal is paid off over time, it turns into equity for the homeowner.
In most loan repayment structures, a portion of the total amount paid per month goes to cover the interest charges, and the remainder is used to pay off the principal amount. Typically, the first portion of a borrower's amortization schedule will be more interest-heavy, while the final portion will be more principal-heavy. As your principal amount decreases, the accrued interest on the amount also decreases per month.