How to record prepaid items ( like interest, prop tax, and insurance) when creating new loan

Nancy K

I just refinanced, and set up the new loan, but I don't know how to account for items in my closing costs such as prepaid prop tax, interest, etc. I can't take them out of the loan, as it reduces the loan amount and I still owe the full amount since I haven't even made one payment yet. Help?

Sherlock

I suggest using split transaction that receives a transfer of the entire new loan balance and distributes the funds appropriately to payoff the remaining interest, principal, closing costs, etc..

Sherlock

The Aggregate Adjustment should be entered as a transfer from the escrow account in the split transaction or the cash account you created.  You may want to review: https://www.quickenloans.com/mortgage-glossary/aggregate-adjustment

Regarding using escrow account versus direct payments in the loan payment, my preference is to use an escrow account and enter reminders for the payments from the escrow account.

Sherlock

I suggest using split transaction that receives a transfer of the entire new loan balance and distributes the funds appropriately to payoff the remaining interest, principal, closing costs, etc..

agenericname

> @Sherlock said:
> I suggest using split transaction that receives a transfer of the entire new loan balance and distributes the funds appropriately to payoff the remaining interest, principal, closing costs, etc..

Here is an example of how I handled a split transaction for this. I created an asset account for the Residence. I created second account for Residence - Capitalized Cost Asset account (blue marks) which you see I put in specific line items from closing so I could track. I felt that they were part of the "cost" of the home/asset but not in the specific sales price of the home. The rest were "expense" categories (red dots). So I wanted to track them separately. Its a bit of a bean counter thing, but I like to see the breakdown of the cost and match it to the closing statement and the checking account disbursement.

This is just my opinion on how to handle. Feel free to make your own categories.

~the generic testing account of @jr7107

NotACPA

Interest paid at closing goes into the same category as you'll use for interest in your monthly payments.

Was the entire year's Prop Tax enclosed in the escrow, or only the portion until closing date?

Same question re: insurance.

I'd transfer BOTH of these amounts to a newly created ASSET account called ESCROW, and when your Prop Tax and Insurance are actually paid ... pay them from ESCROW ... not your checking account.

Nancy K

I am so excited! After a lot more thought and the help from this forum, I think I have come up with a good solution.

I created a cash account and funded it with the full amount of the loan. From it, I paid off my previous mortgage, as well as another loan since it was a cash out refinance. I recorded all of the closing costs, and charged them back to the same category, except for the costs that were actually paid, like the insurance premium that went to Farmers, and the property tax that went to the state treasurer. Those amounts I transferred to their respective already in existence categories. I set up a new escrow account for this loan, and transferred the prepaid insurance and taxes to it. Everything zeroed out and went to the right place to reflect already paid expenses. Hurray!

But...and except...there is one item under "Initial Escrow Payment at Closing" which I don't understand- both what it is. It is listed as "Aggregate Adjustment" for $-340.28. and reduces the amount in my escrow account going forward by that amount. Anyone know what it is? But now my escrow account lines up with the amount listed on Rocket's site, except for a couple of pennies, which is strange too!

Lastly, now I have to decide if I want to keep an escrow account, or put the amount I am "saving" with my mortgage company directly into my prop tax and homeowners categories as a credit, subtracting the payments when made by Rocket Mortgage. Any thoughts?

Again, thanks for all the help, and happy holidays!

Sherlock

The Aggregate Adjustment should be entered as a transfer from the escrow account in the split transaction or the cash account you created.  You may want to review: https://www.quickenloans.com/mortgage-glossary/aggregate-adjustment

Regarding using escrow account versus direct payments in the loan payment, my preference is to use an escrow account and enter reminders for the payments from the escrow account.

Nancy K

Thanks for all the help. Everything solved!

Quicken Paloma

Hello @NancyK, 

Thank you for reaching out to the Quicken Community. We are glad your issue is resolved. If you come across any errors or have questions please let us know!

-Quicken Paloma