What You Should Know About Mortgage Loan Accounting Reports

What is a mortgage loan?

A mortgage loan is a loan secured by a lien on real property that serves as collateral for the lender until the debt is repaid. The borrower is responsible for the outstanding principal balance plus any accrued interest expense up to that time on any given date. Monthly interest and principal payments that repay the principal sum over a period of years are frequent in mortgage loans.

The borrower’s balance statement will show a current liability for:

  • principal payments due within one year of the balance sheet date, and
  • any accumulated interest payable as of the balance sheet date. (Interest is not reported as a liability for future accounting periods.)

The borrower’s balance sheet will also show a noncurrent liability equal to the difference between:

  • the total unpaid principal balance owed as of the balance sheet date minus
  • the principal payments reported as a current liability.

For the principle balance receivable and any accumulated interest receivable, the lender’s balance sheet will show a current asset and a noncurrent asset. The amounts shown as liabilities on the borrower’s balance sheet for the same date will be symmetrical.

On a classified balance sheet, how should a mortgage loan payable be reported?

Definition of a Payable Mortgage Loan

The principal amount owed on a mortgage loan is kept in the account Mortgage Loan Payable. (Any interest that has accrued after the last payment should be recorded as current debt, Interest Payable.) The balance sheet does not include future interest.

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A current liability is any principle that must be paid within 12 months of the balance sheet date. The balance of the principal is classified as a long-term liability (or noncurrent liability).

An example of a repayable mortgage loan

Assume that a corporation owes $238,000 on a mortgage and is expected to make monthly payments of around $4,500. Each monthly payment consists of a $3,000 principal payment plus approximately $1,500 in interest. This means the corporation will have to repay $36,000 ($3,000 x 12 months) of the loan’s principle over the next 12 months. As a result, a current liability of $36,000 is stated. Because the remaining principal of $202,000 ($238,000 minus $36,000) will not be payable within one year of the balance sheet date, it is represented as a long-term (or noncurrent) liability.

You may find out how much principal you owe in the coming year by looking at the amortization schedule for your loan or asking your lender.

Creating a financial portrait of yourself

Many lenders only want a single financial statement, which includes a full account of your current monthly income and expenses, as well as a list of anything important you own and its value. You can use the sample financial form below to provide the information that most lenders require.

Some lenders require additional information, such as the name of your employer, your current job title, and the length of time you worked at your current (or previous) position. They might also ask for your Social Security number, driver’s license number, and if you’ve ever filed for bankruptcy.

Only the first item under Monthly Expenses: 1st Mortgage on the above form is likely to trip you up (PITI). Principal, interest, taxes, and insurance (PITI) are acronyms for principal, interest, taxes, and insurance. The PITI amount is equivalent to your monthly payment if a portion of your monthly payment goes into an escrow account to cover your property taxes and homeowner’s insurance. If you pay property taxes and insurance separately, add the total for the year to your monthly home payment, divide by 12 months, and add the result to your monthly house payment.

Don’t overanalyze your financial statements when creating estimates. So you don’t end yourself committing to something you can’t truly afford, use realistic numbers.

Each lender has its own affordability guidelines for determining if you have enough income to cover your mortgage payment. If you’ve hired professional help, your representative is likely to be familiar with the lender’s affordability guidelines and will be able to manipulate the figures in your financial statement to qualify you while still presenting a realistic picture of your finances.

Estimating your post-modification financial situation

Lenders frequently request a forecasted financial statement demonstrating the budget adjustments you’re ready to make and expect to make in order to restore financial stability following the loan modification. For example, you might decide to sell one of the family cars to eliminate a payment and save money on auto insurance and maintenance, reduce your grocery bill by a couple of hundred dollars per month, reduce your dinner-and-a-movie outings from twice a week to twice a month, and so on.

Creating this anticipated financial statement should be considerably easier once you have a current financial statement. Add income to the categories where you really think you’ll be bringing in more money (if any), and cut expenses where you think you’ll be able to save money. Don’t forget to factor in the decreased mortgage payment as a result of the loan modification.

What is the best way to make a mortgage payment?

Most lenders allow you to pay your mortgage in a variety of ways, including:

Online: Making payments online through your loan servicer’s website is the most convenient option. To make sure you pay on time, consider setting up automatic payments.

By mail: You’ll usually find a section of your mortgage statement that you may tear off and mail back with your payment. Allow extra time before your mortgage due date if paying via mail. Get a receipt from the post office or consider using next-day delivery if you’re nearing the due date or the end of the grace period.

On the phone: Some lenders allow you to make mortgage payments over the phone by calling them. Simply check to see if your loan servicer charges a price for this service.

When meeting in person: You can make your mortgage payments in person if your lender or bank has a physical office. Make certain to obtain a receipt. Lenders are required by law to credit payments the same day they are made, so if your servicer levies a late fee, the receipt will show you paid on time.

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