Final answer:
The principal amount of an assumed mortgage appears on the buyer's statement as a liability. It represents the outstanding debt taken over from the seller, excluding interest. This liability is a legal obligation to repay the principal over the agreed term, often resulting in a transfer in the secondary loan market where banks sell the loans to other financial institutions.
Step-by-step explanation:
The principal amount of an assumed mortgage appears on the buyer's statement as a liability. This principal is the portion of the debt that must be repaid to the creditor, excluding interest. Typically, when a buyer assumes a mortgage, they agree to take over the existing obligations of the seller's mortgage, including the remaining principal balance.
Historically, a buyer needed to make a down payment, which is often around twenty-percent of a home's purchase price. For example, on a $100,000 house, a buyer would typically pay $20,000 down and borrow the remaining $80,000. This borrowed amount represents the principal on the mortgage and appears as such on financial statements.
From a bank's perspective, the mortgage is considered an asset because it represents a legal obligation of the borrower to repay the borrowed amount with interest over time. However, banks often sell these loans in the secondary loan market to other financial institutions, which then become responsible for collecting payments.