How to record mortgage payments to reduce loan balance using principal and interest categories

Oceanfront
Oceanfront Member ✭✭

How do I get the Parent Category to show all house expenses (including both interest and principal, etc. ) while reducing my Mortgage account by the principal amount?

Two Accounts in Quicken

  1. Quicken Checking account: Directly linked to the bank
  2. Quicken Mortgage account: Manually created an account to track Loan Balance. Monthly mortgage payments (Say $900) drawn from the checking account.

Current Mortgage Loan Balance $100,000

Mortgage Loan Payment $900 = $600 interest and $300 in principle.

The monthly mortgage loan payment of 900 shows correctly in our Quicken checking account. We assign the category of Mortgage Account. This allows the 900 payment to register in the Quicken mortgage account and reduces the loan balance register by 900.

New Mortgage loan Balance in the Quicken Mortgage account = 99,100, perfect

I add in an entry in the Quicken mortgage account for 600 to cover the interest using "House Interest" category

New Mortgage loan Balance in the Quicken Mortgage account = 99,700, perfect

Now the issue.

If I run a report to show all parent categories "Home expenses," Quicken does include "House Interest," but does not include "House Principle" since this category was not used since it was assigned to the mortgage lender account category.

If I switch the 300 principle payment to a "House Principle" category, the Parent category shows the correct expenses (principal and Interest), but the house Mortgage loan account will not be reduced by the principal amount, yielding an incorrect balance, to which I have to manually override each month.

Hence, how do I get the Parent Category to show all expenses (including principal) when reporting and also reduce my Mortgage account by the principal amount?

Comments

  • Oceanfront
    Oceanfront Member ✭✭

    This also affects Planning Budgets, as I currently have to have an interest payment of 600 under the parent category and a principal payment of 300 associated with the mortgage loan account in different areas of the budget

  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    edited May 2023

    That "House Principle" Category is mainly there, as far as I can tell, to deal with a situation where a user has elected to make their mortgage loan a "downloading" loan.

    When a loan is a downloading loan the principal amount paid is downloaded by the lender but that payment doesn't affect cash, as it should. It only affects the mortgage balance itself because the "offset" to the debit entry - the entry reducing the balance of the loan - is the mortgage Account itself. The accounting effect of doing this is that your Net Worth increases; you've reduced a liability on you balance sheet without "spending" any cash!

    Of course in the real world you have spent that cash so the trick here is that the principal portion of your payment is debited to an expense Category - "House Principal" - even though paying the principal on a loan isn't really an expense, it's a transfer. But by using that House Principal Category and having it flow through the Expenses section of a Spending Report your Net Worth is reduced, offsetting that trick entry over in the mortgage loan Account.

    You could do the exact same thing with your manual loan Account. When you make a payment and enter it into the checking Account, have the principal portion of the go to then House Principal Category. Then, go over to the loan Account and enter that same dollar amount as a reduction of the loan principal, and in the Category box enter the name of the mortgage loan Account, surrounded by square brackets: [Name of Loan Account].

    So, it's a bit of extra work but that's the only way to

    "…get the Parent Category to show all expenses (including principal) when reporting and also reduce my Mortgage account by the
    principal amount. "

  • UKR
    UKR SuperUser ✭✭✭✭✭

    In Quicken for Windows you cannot have a transfer show as both a transfer to reduce the mortgage balance AND a categorized expense.

    The correct way to pay an offline mortgage is by creating a transaction in your checking account which looks like this (the mortgage setup process creates a scheduled reminder with these split details for you)

    The sum of these 4 items is the total amount you send to the mortgage company every month from your checking account.

    BTW, the Split lines should always be presented in that order:

    1. Principal transfer to mortgage account,
    2. Interest to an expense category,
    3. additional principal paid every month or 0.00
    4. amount of Escrow included in total payment as transfer to an Escrow asset account or 0.00 or blank line

    Lines 1 and 2 are calculated amounts, inserted into each monthly reminder based on the payment schedule. Under normal circumstances you should not have to make changes to these amounts.

    If you want to see Principal amounts appear as expenses in reports or in the budget you need to include Transfers out to the mortgage accounts as expense items.
    If you use the Setup - generated Reminder there's no need to make any additional (fake) transactions.

    The transfer to Escrow account is not an expense. Actual payments made by the mortgage company for insurance or local taxes are recorded as deductions from the Escrow account and appear in their own respective expense categories when paid once or twice a year.

  • Oceanfront
    Oceanfront Member ✭✭

    Thank you both; it definitely helped clarify some of the issues I was having. UKR, The visual was very helpful, and I now understand the part about the principle needing to be a TXFR expense. This was very helpful. Thank you!!

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