HELOC Setup Question

Hi-

Having trouble setting up a HELOC in Quicken properly. Quicken found the account when connecting to a checking account via direct connect and created a credit account for it, but what do I do with the interest payment transactions that download? The account is treating them like payments to the principal balance (which is interest only for some time), whether accepted into the register as a transfer from the checking account or as a category of interest. I know I could set up an additional HELOC "interest" account to track interest payments made (transfer them out of the main HELOC account to reflect the accurate principle balance), but that seems unnecessarily complicated. I feel like I am missing something...

Answers

  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    edited September 2021
    I've never had a HELOC so I'm a bit at sea here, but what appears to be missing in the downloads is an explicit interest charge that would create the expense in the first place, i.e.,
    Debit (increase) HELOC Interest Expense Category     $XXX
    Credit (increase) HELOC Loan Account                          $XXX
    such that the interest payment out of the checking Account would properly decrease the principal balance of the HELOC loan.  If the downloads don't include the origination of the interest expense but do credit your payments to the loan's principal, you'll always be fighting this problem. 
    One "cure" here is to make the loan a manual Account such that everything affecting the loan is handled via your checking Account.  The other approach would be to manually create the increase in the loan's principal due to the interest expense charge, then the download of the payment would reverse that entry.
    You might also talk to the financial institution about this and ask why the interest expense charge isn't originating or being included in the downloaded information.
  • thecreator
    thecreator SuperUser ✭✭✭✭✭
    lizc888 said:
    Hi-

    Having trouble setting up a HELOC in Quicken properly. Quicken found the account when connecting to a checking account via direct connect and created a credit account for it, but what do I do with the interest payment transactions that download? The account is treating them like payments to the principal balance (which is interest only for some time), whether accepted into the register as a transfer from the checking account or as a category of interest. I know I could set up an additional HELOC "interest" account to track interest payments made (transfer them out of the main HELOC account to reflect the accurate principle balance), but that seems unnecessarily complicated. I feel like I am missing something...
    Hi @"llizc888 ,

    If you set up a HELOC from the beginning, manually, the beginning Balance is always $0.00.
    The line of credit is there to use, only if you want it. You are not required to use it.
    Once to draw on it, it is always a negative Balance. But the Drawn Amount is recorded as a Charge.
    You don't need to pay back the principle, until a certain time in the future. But The Bank, begins to charge Interest on the amount borrowed, each month and is recorded as a charge and the Interest on the Outstanding Balance is recorded as a Charge.

    When you make Payments, from the Checking Account to the Bank and the HELOC Account in Quicken, the entire Amount is recorded in the Payment Column. This reduces the Outstanding Balance. The Category Column shows the HELOC Account Name in Brackets "[]".

    You can record the Interest Charges being added to the HELOC Balance as Interest Exp., in the Category Column of the Register.

    Questions?







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  • lizc888
    lizc888 Member
    Yes. Leaving the interest payments in the HELOC account reduces the principal owed in Quicken (clearly not accurate). What I am trying to figure out is what to do with those. Our product is interest only for a number of years...
  • lizc888
    lizc888 Member
    The interest payments are downloading correctly to the credit/HELOC account, as well as to the checking account that paid them-- it's a principal balance issue. Quicken doesn't care that it's a interest payment. It only sees a credit/payment to the account. Interesting idea to add a debit/charge to offset, but not sure how that would be categorized or what the full effect on reporting would be.
  • UKR
    UKR SuperUser ✭✭✭✭✭
    lizc888 said:
    Yes. Leaving the interest payments in the HELOC account reduces the principal owed in Quicken (clearly not accurate). What I am trying to figure out is what to do with those. Our product is interest only for a number of years...

    That I would like to see.
    Let's assume you have withdrawn money and currently owe $5000 on your HELOC. Running Balance is now -5000.00
    Every month interest expense is charged to your HELOC account. If recorded correctly, it should "increase" your running balance, e.g., from -5000 to -5100 ... you now owe more money.
    When you decide to make a payment, e.g., $300, it should be recorded as a transfer from your checking to the HELOC, "reducing" your running balance from -5100 to -4800

  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    edited September 2021
    " Quicken doesn't care that it's a interest payment. It only sees a credit/payment to the account."
    I told you exactly what the problem is, that being there's no interest expense being created anywhere in your file.  The Quicken entry for the payment right now is being recorded as a transfer, and either you are creating that entry or, if you're not, Quicken is looking for transfers, presumably by looking at the same dollar amount showing up in two different Accounts close to one another, and making that payment a "transfer."  You can't simply rely on downloads and expect Quicken to "do your accounting for you."  It's an accounting program that helps you do your accounting.  You need to step in and get things set to right.
    It's not really clear where the interest payment itself is coming from, i.e., is it an entry originating in your checking Account or is it an entry originating in the loan Account.  If that interest payment is originating from your checking Account you need to edit the payment such that the the reduction in cash is offset to a interest expense Category.  That way you'll see no interest entries at all inside the HELOC.  If the interest payment is originating in the loan Account, i.e., via a download, then you must create the interest expense entry in the loan Account.
    You are right in one regard: Quicken doesn't "care" about any entry, it only posts entries you make manually - right or wrong - or entries that get downloaded to it - also right or wrong. 
    "Interesting idea to add a debit/charge to offset, but not sure how that would be categorized or what the full effect on reporting would be."
    You would categorize it to some interest expense Category - maybe a Category that you create.  The full effect on reporting would be to get your accounting correct.  The expense originates in the loan Account as an increase in principal, the transfer from checking reduces cash and reveres the principal increase, leaving the loan amount unchanged.
  • enirevets
    enirevets Member ✭✭
    I think my question is essentially the same as Lizc888; and after reading through this thread, I think I see a partial answer but not complete. I also have a couple bits that might help clarify the question.
    1) I too have a HELOC and have struggled with differentiating interest from principal. What I’ve been doing is to add (manually) a debit to my HELOC register for each month’s interest; and to edit the last payment to a split transaction, part interest and part principal. So, all interest (both charges and payments) is categorized as such, and what’s left over can be assumed to be all principal. IS THAT ESSENTALLY WHAT HAS BEEN POSTED TO DATE, OR AM I MISSING SOMETHING?
    2) If I’m not missing anything, then does the following shed any additional light?
    First, as lizc888 said, Quicken “found HELOC at bank via direct connect
    <<AND CREATED A CREDIT ACCOUNT FOR IT>>” (emphasis added – CREDIT account)
    Second, in searching around Quicken Help and Community a couple months ago – January 7 to be precise - I found the following:
    <<“use a Quicken HELOC account instead of a credit card account”>>
    (That’s an exact quote that I jotted down that evening; unfortunately I didn’t note exactly where I found it. That same note to self also has the following summary, in my own words, of several related posts: “It appears HELOC should be able to track P & I without having to enter it manually.”)
    3) Lastly, if the issue is indeed the account “type” in Quicken, then… any idea whether it’s possible to change the “type” of the existing account, as opposed to re-creating all from scratch? I’ve looked briefly for a way to change the existing, but without success.
    Thanks in advance.
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    edited March 3
    "1) I too have a HELOC and have struggled with differentiating interest from principal. What I’ve been doing is to add (manually) a debit to my HELOC register for each month’s interest; and to edit the last payment to a split transaction, part interest and part principal. So, all interest (both charges and payments) is categorized as such, and what’s left over can be assumed to be all principal. IS THAT ESSENTALLY WHAT HAS BEEN POSTED TO DATE, OR AM I MISSING SOMETHING?"
    I think you've got the gist of how to do this, but I don't think you've got it completely correct since you haven't indicated what the balancing (offsetting) side of your "debit to my HELOC register for each month’s interest" is.
    Having never had a HELOC my assumption here as to how they work as a practical matter is that you can take money out (increase your debt) as you wish, pay money back (decrease your debt) as you wish, and the bank periodically charges you interest, which also increases your debt.  So the accounting in this scenario is:
    Borrow Money
    Debit (increase) Checking Account            $XX,XXX
    Credit (increase) HELOC Liability Account  $XX,XXX
    Bank Charges Interest
    Debit (increase) HELOC Interest Category  $     XXX
    Credit (increase) HELOC Liability Account  $     XXX
    Make a Payment
    Debit (decrease) HELOC Liability Account   $ X,XXX
    Credit (decrease) Checking Account           $ X,XXX
    So the recognition of the interest expense occurs with the increase in your liability when the bank posts an interest charge, not with a payment split between principal and interest.  If the lender insists you must pay at least the interest every month then there's no need to make a direct entry to the HELOC liability Account because you can recognize the interest expense with your monthly payment, and if you're paying more than interest in a specific payment then that payment would be split between principal and interest.
    We typically split a payment between principal and interest for a regular amortizing mortgage because we know those amounts in advance and don't have the need to recognize the interest expense via an increase in the mortgage liability, but we could do this same accounting as above, if we wanted to.  So say you have an outstanding mortgage with a principal amount of $80,000 and this month's payment is for $750 dollars, split between a principal reduction of $75 and an interest expense of $675.  An alternative way of recording this would be:
    Recognize Interest Expense
    Debit (increase) Mortgage Interest             $75
    Credit (increase) Mortgage Loan Account   $75
    Make Monthly Payment
    Debit (decrease) Mortgage Loan Account   $750
    Credit (decrease) Checking Account           $750

    In all respects a HELOC certainly resembles a credit card more than a regular amortizing loan and if I try to add a HELOC by clicking on "HELOC" under "Add offline account" it ends up classified as a credit card, and if I try to add a HELOC by clicking on "Loan" under “Add offline account" the loan wizard wants to amortize it, and you can't do that with a HELOC.
    I'd think that a HELOC connected via Direct Connect should be able to do things properly via downloading, in the same fashion that a credit card does, but I can't do any more here than speculate. 
    I created a HELOC as a credit card Account and entered a few transactions, then I created a generic liability Account (Debts other than loans") and successfully moved all the transactions from the credit card Account to the new liability Account, and that worked OK.