Purchasing a home for the first time is a huge learning experience. There are many terms you need to know for the process, including a mortgage loan payable or mortgage payable. So what exactly is it?
Mortgage loan payable refers to the unpaid principal balance on a house loan. In more simple terms, this is the amount of money that you have to pay for your home loan, not including interest, and other related fees such as mortgage insurance. It’s only the principal balance.
Now that we’ve covered what a mortgage loan payable is, you may be wondering, is mortgage payable a current liability? We will discuss this topic here and share a bit more information on mortgage payables.
Is Mortgage Payable a Current Liability?
A mortgage loan payable is considered to be a current liability. Determining whether it is current or non-current is a bit more complex.
Mortgage loan payability can be both a current and noncurrent liability. However, let us first define both of these terms.
What is a Current Liability?
Liabilities can be divided into two types. As we have mentioned earlier, these are current and non-current liabilities.
A current liability refers to the short-term debts that you have to pay in less than a year, or within the year. Current liabilities can include but are not limited to the following:
- Employee wages
What is a Non-current Liability?
On the other hand, non-current liabilities are also known as long-term liabilities. The reason being that these liabilities are not due within a year, and can be paid at a later date. Non-current liabilities can be but are not limited to the following:
- Long-term loans
- Deferred taxes
When is a Mortgage Loan a Current Liability?
A mortgage loan payable can be both a current and non-current liability at the same time. Current liability is that in your mortgage loan which must be paid within a year.
On the other hand, the remaining balance in your mortgage loan payable is considered as a non-current liability. That is because typically a home loan is not something that can be paid within a single year.
It usually takes many years to fully pay off a home loan. But then again, that is the case with most loans are, such as auto.
Now, because your mortgage loan payable is both a current and non-current liabilities, it is important to list them in your balance sheet.
What is a balance sheet?
A balance sheet is essentially a documentation of your company’s assets. This documentation shows your assets, liabilities, as well as equity.
Liabilities in your balance sheet are important to list in your balance sheet. And it is important to update your balance sheet regularly if there are new or paid liabilities.
Thus, a mortgage loan payable is considered both a current and a non-current liability. We hope that this article has helped you determine whether or not your mortgage payable is a current liability.