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How to Calculate Mortgage Payable in Accounting

Mortgage payable is the liability of business when a business takes the loan purchases or construction of long term assets by giving his other owned assets as security. Businessman has to pay the principle plus interest on the mortgage. Both are the part of mortgage payable amount.

Following are the simple steps of calculating the mortgage payable amount


1. Calculate the Total Mortgage Payable 

First calculate the total amount of mortgage payable. It will show your beginning balance sheet or find from mortgage agreement document. For example it is $ 1,00,000


2. Calculate First Month Interest and Principle Payament

Read the terms and conditions. For example rate of interest may be 12% per year on the balance mortgage payable. (But, in your case it may be fix or with changing rate per year. So, mortgage payable amount will be different in your case). It means per year interest payable is $ 12,000. Per month interest payable is $ 1000. Now, per month repayment installment. For example, it may be $ 1500. Now, deduct per month interest from this. So, first payment of principle of mortgage is $ 500 and interest payment is $ 1000.


3. Calculate the Balance Amount of Principle 

Now, deduct first month paid principle from total amount of payable principle of mortgage. In our case, we had total mortgage principle is $ 1,00,000. But, we have paid first month small part of this principle. So, we will deduct this. $ 1,00,000 - $ 500 = Now, we have $ 99500 as balance of mortgage payable. Now, calculate the interest on it for one year. If we calculate interest will be $ 11940 annual. Per month interest will be $ 995 and second  month's mortgage payment will be calculate by deducting $995 from $ 1500 and it will be $ 505. Now, above steps will be repeated for calculating mortgage payable in accounting which you can calculate use of ms excel.



For calculating monthly installment for repayment of mortgage+ interest, you can use following formula.

P = iA / [1 − (1+i)^-N]


See Also 


  1. Mortgage Backed Securities 
  2. Differences between Loan and Advance 
  3. How to Calculate the Debt Capacity of Company 


References :

  1. http://en.wikipedia.org/wiki/Mortgage_loan
  2. http://www.cliffsnotes.com/more-subjects/accounting/accounting-principles-ii/long-term-liabilities/mortgage-payable
  3. http://www.ehow.com/how_12048171_calculate-mortgage-payable-accounting.html 
  4. http://banking.about.com/od/mortgages/a/calculatemortg.htm 
  5. http://oakroadsystems.com/math/loan.htm

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Accounting Education: How to Calculate Mortgage Payable in Accounting
How to Calculate Mortgage Payable in Accounting
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