What are mortgages classified as in financing?

Mortgages are classified as long-term debt because they are loans specifically used to purchase real estate, where the borrowed funds are repaid over an extended period, typically 15 to 30 years. This classification reflects the nature of the obligation, as long-term debt represents financial liabilities that are not required to be settled within the next year.

Mortgages usually have fixed or adjustable interest rates and involve property as collateral, which adds security for the lender. This long-term structure distinguishes them from short-term liabilities, which are due within a year, or operating expenses, which are costs incurred in the day-to-day functioning of a business. Equity financing differs from long-term debt because it represents ownership in a company as opposed to borrowing. Understanding these classifications is important for evaluating a company’s financial health and managing its capital structure effectively.