## Mortgage payable definition

### Mortgage Payable: Definition

**A mortgage** is a promissory note secured by an asset whose title is pledged to the lender. It is a form of long-term liability. Mortgages are generally are payable in equal installments consisting of interest and principal.

### Accounting Procedures

To demonstrate the accounting procedures, suppose that on 2 January 2019, Grant Corporation purchases a small building for $1 million and makes a down payment of $200,000.

**The mortgage** is payable over 30 years at a rate of $8,229 monthly. The annual interest rate is 12%, and the first payment is due on 1 February 2019.

### Journal Entries to Record Mortgage Payable

The journal entry to record the purchase of the building is as follows:

Subsequent entries are based on dividing the monthly payment of $8,229 between principal and interest. A mortgage amortization table can be used for this purpose, and such a table for the first 5 months of 2019 is shown as follows:

Each month, the total payment of $8,229 is divided into interest and principal. The interest is based on 1% (12% / 12 months) of the note's carrying value at the beginning of the month.

Therefore, in February, the interest is $8,000 (or $800,000 x 1%) and the principal portion of the payment is thus $229 (or $8,229 - $8,000). In March, the interest is $7,998 (or 1% of $799,771), and this pattern continues monthly.

The journal entry for February 2019 is presented as follows:

Since most **mortgages** are payable in monthly installments, the principal payments for the next 12 months after the balance sheet date must be shown in the current liability section as a current maturity of long-term debt.

The remaining portion is, of course, classified as a long-term liability.

*Source : www.financestrategists.com*