How to record loan payoff

JulisaAD

Hi, We have refinanced the house with a cash back option. Not sure if it is actually a Home Equity, because the interest rate was lower than the original loan and we do not have to pay PMI. The "lender" paid off the current mortgage, along with other loans (car, credit cards, medical bills) and we also got a lump sum "pay out" to cover home renovations and education costs for my daughter. The only way I was tracking the original mortgage was with a regular category named "mortgage". I never set up the original as a "mortgage loan". I am confused about how to set up this second loan and how to record the pay off of the other loans. I still need to have them active for tax reasons.

Tom Young

It's hard to know how advise you as the devil's in the details and we don't have those details. 

One way of doing this that's "wrong" in some respects but probably would get you to where you want to be is to "pay off" any of those "other" loans by making an entry into those Accounts as to the amount of the payoff but recording the "other side" of the entry into the same Account.   So if you owed, for example, $3,500 on a car loan and had that loan as an Account in Quicken named "Car Loan", you'd enter the $3,500 in the "Decrease" column and then in the Category box enter "[Car Loan]".  This has the effect of making the loan "go away" but doesn't affect any other Account in your file. 

You could take the same approach with the "cash to you" amount; enter that amount as a deposit in your checking Account and then use that same checking Account as the offset to the entry.  As before, cash in bank is increased with no effect on your other Quicken Accounts.

Having gotten those other entries out of the way then you'd use the Quicken loan wizard to set up the new Mortgage.  Quicken will make an Opening Balance entry that uses the same trick of having the offset to the opening balance amount that's posted to the "Increase" column being the same Mortgage Account.

The result of this is that the "old" liability amounts will disappear, the cash in bank will be increased appropriately and the new mortgage will be on your books.

The "more correct" approach would be to first set up the new Mortgage Account and then record all the Transfers into that Mortgage Account that either extinguishes the various liabilities or increases your cash balance in the checking Account, then adjusting that first Opening Balance figure to get the starting amount of the loan correct.

JulisaAD

I see. Thank you so very much for your quick response. I really appreciate it. Just out of curiosity, what happens if I, when I no longer need them, just "close" the paid off accounts without entering anything? Will that just zero them out?

Tom Young

I've never closed an Account in Quicken that didn't already have a $0 balance so I have to rely on Quicken's statement that "Closing an account will set balance to zero..."  As a practical matter I'd think it would be better to "zero out" the Account in the manner I've prescribed along with a brief explanation of what you've done in the memo field.  That would leave kind of an audit trail if you ever have to look in that Account again.

Chris_QPW

Think about what if means to zero out an account if you don't put in the transactions/details of how that happened.
In other words if someone said "zero out that account" and gave you no more details, what would you do?
What Quicken will do is put in a balance adjustment transaction to bring it to zero.

And as for "no longer need them".  There isn't a single account in my data file that stretches back to 1996 that is "no longer needed".  They are all needed for reporting things like my net worth over time.  If you remove them, you remove that history.

JulisaAD

I see what your saying. Just not sure I want to deal with the hassle. I don't keep track of my net worth, and any financial records I did decide to keep were lost in the flood after hurricane Harvey. I gave up quite a few of my OCD tendencies after that. I just want to tidy up my account as easily as possible.

Tom Young

You mention "credit cards" among he liabilities that were paid off with the new mortgage.  Assuming those credit cards are still active and being used you wouldn't want to "close" those Accounts in Quicken, you'd need to record the pay off as I've described.

JulisaAD

Thanks for your help. I did actually close/cancel the cards that were paid off. I will be doing what you suggested in your first response. If I come across any issues I'll reply here.