How to properly record split for interest and principal on mortgage

harry askenazi

I have a home asset account linked to its loan account.
I have a payment to the lender from my checking account.

My questions are:
Do I transfer the principal payment to the home asset account or something else? I would think the asset since it increases that account by the amount of principal paid.

Do I simply categorize the interest paid as "Home:Interest" or s/t like that? Or should it be a transfer?

If the above is correct, then I am not transferring anything to the loan account but Im not sure if that's right.

Tom Young

"Do I transfer the principal payment to the home asset account or something else?"

The answer to that question is "something else", namely the mortgage loan liability you have sitting on your balance sheet.  Principal payments decrease the balance of that liability to the bank, they don't adjust the cost of your house asset.

Quicken can create an amortization schedule and even post the transactions to the Accounts and Categories as needed, or you can do manual, after the fact entries based on statements you receive from the bank.

"Do I simply categorize the interest paid as "Home:Interest" or s/t like that? Or should it be a transfer?"

Interest expense is properly posted to a Quicken Category (Quicken-speak for income and expense amounts); it's not a transfer as that would involve posting to some balance sheet Account.  But interest paid is generally not considered an asset or a liability, it's typically considered a "period cost", i.e., an expense.

NotACPA

Nope, you couldn't have used the "Loan Wizard" ... because it would have created a repeating payment for you that would post in your checking account and, within the splits, reflect the Principal payment, the interest payment and and escrow payments.

NotACPA

Have you looked into Q's "Mortgage Wizard"?  It can handle the calculations of the Loan amortization AND handle any escrow type payments that are also included in your monthly payment.

Tom Young

"Do I transfer the principal payment to the home asset account or something else?"

The answer to that question is "something else", namely the mortgage loan liability you have sitting on your balance sheet.  Principal payments decrease the balance of that liability to the bank, they don't adjust the cost of your house asset.

Quicken can create an amortization schedule and even post the transactions to the Accounts and Categories as needed, or you can do manual, after the fact entries based on statements you receive from the bank.

"Do I simply categorize the interest paid as "Home:Interest" or s/t like that? Or should it be a transfer?"

Interest expense is properly posted to a Quicken Category (Quicken-speak for income and expense amounts); it's not a transfer as that would involve posting to some balance sheet Account.  But interest paid is generally not considered an asset or a liability, it's typically considered a "period cost", i.e., an expense.

harry askenazi

Thanks for your reply - Im an idiot and of course you're right about the principal not increasing the asset, only lowering the liability.

I'm still not clear on the Interest expense. Since I download from the bank, the total monthly check to the lender is a transaction in my checking account. I planned to split that into 1) Principal transfer to loan account, 2) Escrow transfer to Escrow asset account, and 3) Categorize Interest as a expense.

You wrote "Interest is properly posted..." What did you mean by that? Do my 3 splits above look correct?

NotACPA

The mortgage wizard will COMPLETELY set up your mortgage payment.

Rejecting my prior answer was only shooting yourself in the foot.

harry askenazi

Sorry Im not sure what you mean by "rejecting my prior answer" - if I rejected it somehow, that wasn't intentional.

I followed the wizard when I setup the loan, if I'm not mistaken.

My loan balance is updating properly from the lender's website.

But I still am left with a payment in my checking account register and I need to split it to reflect a transfer to escrow, a transfer to loan (to decrease principal) and then categorize the interest payment expense.

I am not able to transfer into the loan account though. I guess that's ok since the direct/express web connection will properly reflect the balances, but I still dont know what to do with the principal amount in my checking account register.

harry askenazi

To add to the paragraph below from my last response... The interest and principal re not being auto categorized by Quicken. Do I need to setup a recurring bill to pay the loan in order for this to work properly?

> I am not able to transfer into the loan account though. I guess that's ok since the direct/express web connection will properly reflect the balances, but I still dont know what to do with the principal amount in my checking account register.
>

NotACPA

Nope, you couldn't have used the "Loan Wizard" ... because it would have created a repeating payment for you that would post in your checking account and, within the splits, reflect the Principal payment, the interest payment and and escrow payments.

harry askenazi

Thanks - so then that must be the issue and Im happy to mark your answer as solved. I can't find the mortgage wizard though in my instances of quicken. Do I have to delete and re-add the loan? Regardless, where can I find the Wizard? Im on Q Premier Version:R25.21 Build:27.1.25.21

Tom Young

"Do my 3 splits above look correct?"

They look perfectly correct. 

All I meant by "Interest is properly posted..." is that the interest element of the split goes to a "Category", which is Quicken-speak for what accountants call "income and expense accounts."  So if "Home:Interest"is a Category, which I assume it is, then that's "correct", that's "proper."

Setting up the loan using the mortgage wizard will save you a little bit of work and, if you have Quicken enter future payments you can do forward projections of cash and interest expense.

Tom Young

If you can't affect the loan balance by creating splits that's proof positive that you are accepting downloads into that loan Account from your lender.  When an Account is setup that way you're prevented from affecting anything in the Account.

Set up a new "loan" Account.  That will trigger the wizard.  The easiest way to handle this is to pretend you just got the loan "as of" the 1st of the month on your last payment, i.e., after the payment is applied.  You enter the interest rate and the (shortened) loan term and whatever else is needed - escrow in your case - and let Quicken set up the loan in the new Account.

As part of that setup Quicken will make an opening balance entry that is the amount you told it was the amount of your "new" loan.  Delete that entry, then replace it - same date, same amount - with a "transfer" from the old loan Account to the new one.  That zero's out the old Account, which you can then hide if you wish. 

q_lurker

harry askenazi said:

Sorry Im not sure what you mean by "rejecting my prior answer" - if I rejected it somehow, that wasn't intentional.

When you answer the yes/no question about a posting answering your question, that marks the post as Accepted or Rejected.

I went ahead and unrejected the rejection. 

harry askenazi

> @Tom Young said:
> If you can't affect the loan balance by creating splits that's proof positive that you are accepting downloads into that loan Account from your lender. 

So for loans, you can't auto download from lender and also setup an auto posting of splits? Are you suggesting I setup the loan via the loan wizard, dont allow the direct connection to download from lender, and then when the checking account downloads the monthly payment, Quicken will know how to allocate splits bc I defined it in the initial setup of the loan?

NotACPA

YES, that's exactly what we're telling you.

harry askenazi

Got it.
I deleted the mortgage account (couldnt deactivate direct connection bc of an known bug) and I created a manual loan account.

I decided to track from the beginning of the loan since it only started Sep 2019 and that worked fine.

However, I was unable to choose Sep 2019 as the next bill date. With my paycheck I was able to retroactively populate the paychecks due in the Bills and Income reminder screen. But with the mortgage I can only see the bill due beginning today.

If I want to go back in time to have the mortgage splits post properly, using the bills and income reminders feature, what do I need to do?

Thanks again for all your help. Worst case Ill manually assign the splits for past transactions

harry askenazi

Cant seem to delete my last comment but I was able to edit the current bill and backdate it which then worked. For some reason I couldnt do that in the loan setup screen, only after the fact in the edit bills section of Bills and Income Reminder screen