Multi-Month Mortgage Repayment

Rick Milton

I've been using Quicken (for Windows) for over 15 or 20 years, but my son threw me a curve ball. I provided my son a mortgage for buying his home and he has been paying me back monthly. This month's check was for 3 months in advance and I have no idea how to book the transaction! The mortgage has been set up in quicken for at least 10 years and each month when he pays, it works just fine. I'm just stumped with this new issue.

Any ideas or help?

Thanks!

PS -- I think he did it just to get his father's accounting screwed up. LOL

Frankx

Hi @Rick Milton

So what your son actually did, was to make an additional payment of principal along with the normal monthly payment.  So, for simplicity's sake, I suggest that you first post one payment to reflect the normal reduction in principal and interest, per the amortization table.  And next post one payment (adding up whatever additional amounts he paid - not counting the regular mortgage payment) and enter that on the date paid as a reduction of principal only.  Quicken should then adjust the loan amortization going forward for the life of the loan (which will also be shortened somewhat).

Let me know if you have any followups.

Frankx

Mark1104

@RICK Melton - and that is exactly how a mortgage company would handle advance payments..they are principle paydowns.....

you may want to ask your son if he intends to pay the mortgage payment next month or did he think he was 'in the clear' for 3 months..... 

Boatnmaniac

If he gave you 4 months of payments but plans to still keep to the future payments schedule (i.e., he will make another payment next month with payments each month thereafter) then the 3 additional payments received this month should be treated as "prinicipal prepayment" or "principal reduction" and not as 1 month current payment plus 3 months payments in advance.   

Or is he really just paying early for the next 3 months and he won't be making another payment until 4 months from now?  This would not be a principal prepayment situation, just some early payments.

Also, I'm assuming you have a Reminder set up for the loan you extended to him.

IF IT IS A PRINCIPAL PREPAYMENT/REDUCTION SITUATION:  This is how I would do it.

1)  This Month's Reminder:  Edit the split category.  

• 1st line:  This should show a transfer to itself...the name of the Loan in brackets.  Example...[Mortgage Loan].  This is the scheduled Principal amount.  Leave this alone.
• 2nd line:  This should show an interest category.  Leave this alone.
• Edit the next available line (with no $ amount in it) with another transfer to itself, like the 1st line.  The amount should be for the total of the additional 3 payments.
• Click on Adjust (to increase the total amount of the transaction) and then on OK.
• What this does iS to assign principal and interest for this month's payment amount.  And it will apply the 3 months in advance to principal only.  

2)  Next Month's and Future Reminders:  Leave unchanged.

• Quicken will automatically recalculate the remaining amortization schedule because of the principal reduction.
• The loan will show as being paid off more than 3 months early because of the prepaid principal and the resulting lower interest due.

IF HE IS SIMPLY PREPAYING ON 3 FUTURE PAYMENTS AND WILL NOT BE MAKING ANOTHER PAYMENT UNTIL 4 MONTHS FROM NOW:  This is how I would manage it.

1)  This Month's Reminder:  Enter the reminder as it is scheduled.  No changes should be made.

2)  The Next 3 Month's Reminders: 

• Enter each of those reminders with the same date as this month's Reminder.  Quicken will recalculate the amortization schedule not only for these 3 payments but for all future payments, as well.  
• This process will also pull in the end date of the loan a little but not by as much as if it were a principal prepayment situation.

Any questions?

Boatnmaniac

Mark1104 said:

@RICK Melton - and that is exactly how a mortgage company would handle advance payments..they are principle paydowns.....

you may want to ask your son if he intends to pay the mortgage payment next month or did he think he was 'in the clear' for 3 months..... 

How the mortgage company would handle it depends on whether or not the additional payment amount was designated by the payor as principal prepayment or not.  If the additional amount is not designated as such many mortgage companies will designate them simply as early payments of future scheduled payments and that will not provide the interest savings and loan reduction benefits of a principal prepayment.   I should know, I got burned on that with WF when I should have but did not designate some of my early payments as principal prepayment.  It ended up not saving me the amount of interest on the mortgage nor the number of months in the loan repayment schedule that I had thought it would.  I still get mad about that whenever I think of it.

Mark1104

@Boatnmaniac - just another poor WF practice.... I worked for a very large bank in its mortgage servicing organization.   Pre-payments that were received were posted to principle reduction, so that the customer got the benefit.  Otherwise the bank is earning money on those pre-payments and the customer is not (which is what you experienced).  As mortgage payments are typically due on the 1st, any payment arriving after the 20th of the PRIOR month was considered THAT 1st of the month payment.  Payments that arrived any earlier than that were considered principle prepayment.  

Rick Milton

Thank you ALL for your great advice -- and yes -- I think HE was thinking of this as 3 separate monthly payments (no more needed until March), but I think I would have treated it as a reduction of principal and told him he owed me in January again. BUT, I copped out and asked him if he would just write me a check for ONE month as he has been doing so I didn't have to fool with any of this. I'm glad to know it, as he may do this to me in the future and I'll know how to handle it. This was all good advice and sorry for your problems @Boatnmaniac with WF. I've made additional payments to them for years and they always handled it as a reduction in principal, as I had wanted. Thanks again, all!

Boatnmaniac

@Mark1104, @Rick Milton - I mostly stopped doing business with WF about 20 yrs ago because of their poor business and customer service practices (I still do some work with WF because I manage my mother-in-law's finances and she has a couple of accounts with them she won't give up).  Actually, my history with them precedes the current WF.  My mortgage was actually with Norwest Bank and Norwest bought WF in 1998 and then changed their name to WF.  So much of the bad stuff we've all heard about with WF over the last 8-10 yrs has Norwest written all over it.  I'm not sure what the original WF was like but the current WF is Norwest thru and thru.

A bad thing about principal reduction if it is simply automatically applied that way by the bank without the mortgagor's knowledge is that the bank will then usually still expect the full amount of the next month's payment on the scheduled date.  If the mortgagor does not understand that then they can get hit with late payment or past due payment penalties and it can end up messing up their credit score.

So, it's always a good idea for the mortgagor to clearly state the intent of the additional payment amount.