Unpaid principal balance (UPB) is the portion of a loan (e.g. a
mortgage loan
A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any ...
) at a certain point in time that has not yet been remitted to the lender.
For a typical consumer loan such as a home mortgage or
automobile loan, the original unpaid principal balance is the amount borrowed, and therefore the amount the borrower owes the lender on the origination date of the loan.
The unpaid principal balance will decrease as time goes on for the loans that are structured with
level payments. For these common loans, each monthly payment includes both interest and principal. The unpaid principal balance at the beginning of a given month is reduced by that portion of the level payment that is designated principal for that month; so that the unpaid principal balance at the end of the month is the beginning UPB less the principal paid for the month. Hence, the UPB decreases over time.
Example
Showing how UPB decreases each month
A $100,000 loan with an original UPB with a nominal 6% annual rate loan. The monthly interest rate is therefore .5% (6% divided by 12 months). The level monthly payment for a 30-year mortgage loan is $599.55.
The UPB at the end of first month is calculated as follows:
Principal paid in first payment of $599.55
#The first month interest of .5% of $100,000.00 yields $500.00
#$599.55 monthly payment less $500.00 interest yields $99.55 as the principal amount in the first monthly payment
#$100,000.00 original UPB less $99.55 yields the UPB at the end of the first month (beginning of second month) of $99,900.45
#This process is repeated for each subsequent month to calculate the UPB on a monthly basis.
See also
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Due-on-sale clause
A due-on-sale clause is a clause in a loan or promissory note that stipulates that the full balance of the loan may be called due (repaid in full) upon sale or transfer of ownership of the property used to secure the note. The lender has the righ ...
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Mortgage note
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Mortgage law
A mortgage is a legal instrument of the common law which is used to create a security interest in real property held by a lender as a security for a debt, usually a mortgage loan. '' Hypothec'' is the corresponding term in civil law jurisdi ...
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Mortgage Assumption Value The mortgage assumption value (MAV) is the cash equivalent, at the current point in time, of all future savings that could be achieved by assuming an existing low-interest-rate home mortgage loan rather than taking out a new higher interest rate loa ...
References
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Loans