@Agustin Rossi  The Home Must Be Your Principal ResidenceTo qualify for the exclusion, you must have used the home you sell as your principal residence for at least two of the five years prior to the sale.

Do you look at the annual average principal amount of the loan paid down over time?

I personally like the lower monthly payment because you can always make an extra principal payment a year and knock down the life of the loan anyway, but you're not obligated to the higher payment. 

Quote from @Arthur Schwartz: From your PITI, how much is the monthly or annual pay down on principal? 

I opted for the fixed rate with principal payments.

For primary residences, lenders typically don't require PITI (Principal, Interest, Taxes, and Insurance) reserves beyond the down payment and closing costs.

I have paid the principal down to about 179k. 

The note is supposed to mature on December 1 of this year but she's behind about 15k in principal alone. 

If I were to pay back the $100k principal plus, say $8k in interest in 2026, would both he and I report this interest expense/income on our 2026 returns only, with no mention of it on '24 or '25 returns?

If your goal is to get into the next house/2-4 unit, save for a down payment rather than throwing money at the principal to eventually borrow against it via HELOC.