What Does Principal Curtailment Mean on a Mortgage Statement?

A mortgage statement offers homeowners a comprehensive overview of their loan’s status. Understanding the terminology on a mortgage statement is important for managing personal finances. This article clarifies principal curtailment to help readers understand their mortgage obligations.

Defining Principal Curtailment

Principal curtailment refers to an additional payment made by a borrower directed exclusively toward reducing the outstanding principal balance of their mortgage loan. This payment is distinct from the regularly scheduled monthly mortgage payment, which typically covers both principal and accrued interest.

This action is initiated by the borrower and is separate from “principal reduction” programs, which lenders sometimes offer to distressed homeowners. A borrower-initiated principal curtailment directly impacts the loan’s principal, reflecting a proactive financial decision. The funds are applied to reduce the unpaid principal balance, rather than covering interest or future scheduled payments.

How Principal Curtailment is Applied

When a regular mortgage payment is made, funds are first allocated to cover accrued interest, with any remaining amount then applied to the principal balance. In contrast, a principal curtailment payment operates differently. This additional payment bypasses the interest calculation entirely, going directly to reduce the outstanding principal balance.

This direct application to the principal immediately lowers the foundation upon which future interest charges are calculated. For example, if a borrower adds $100 to their payment and designates it as principal curtailment, that entire $100 reduces the loan’s principal. Mortgage servicers are generally required to accept and apply these additional principal payments when clearly identified by the borrower.

Principal Curtailment on Your Mortgage Statement

Information regarding principal curtailment typically appears in specific sections of mortgage statements. Homeowners can find these details under headings such as “Payment Activity,” “Transaction Details,” or within a “Loan Summary” section.

Common labels used to denote a principal curtailment include “Additional Principal Payment,” “Principal Reduction,” or “Extra Principal Applied.” The statement will generally show the date the payment was received, the amount allocated to the principal, and the updated principal balance after the curtailment.

Initiating a Principal Curtailment Payment

To ensure a payment is correctly applied as a principal curtailment, clearly designate the funds as “principal only” or “principal curtailment” to the mortgage servicer. Without this explicit instruction, additional funds might be applied to future scheduled payments or allocated to interest before principal, rather than directly reducing the loan’s balance.

Several common methods exist for making such a payment. If using an online portal, look for options like “make an extra payment” or “principal only payment.” For payments sent via mail, write “principal only” in the check’s memo line. When making a payment over the phone, explicitly inform the representative that the payment is for principal curtailment and request confirmation.

It is always advisable to confirm with the servicer their specific procedures and to verify the payment’s correct application on the subsequent mortgage statement.