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Correct Mortgage Payments Incorrectly Setup without Splits

I have a mortgage loan where the payments were originally setup to only post the entire payment to a "Loan Payment" category. However, I need to split future and previous payments to properly allocate principle, interest and escrow.

Going forward I understand I would need to adjust the scheduled payment split lines in this order: 1) Principle to mortgage account, 2) Mortgage Interest Category, 3) Any principle adjustments based on payment differences to mortgage account & 4) to an escrow account.

Is this the proper way to fix this issue and is there an easy way to correct historical payments other than manually correcting each payment?

Thank you!

Best Answer


  • jtjones0304
    jtjones0304 Member ✭✭
    Thank you Tom for the quick reply it is very helpful. To clarify, I already had a mortgage account setup but the scheduled payment was only recording the total payment to a "Loan Payment" category and the loan account was simply posting an adjustment to itself for the principle. If I modify the existing payment on the loan to include principle, interest and the escrow transfer, will the loan then automatically update the interest and principle portion on the payment? I'm just not sure how Quicken knows to update the split lines automatically on scheduled payments for principle and interest based on the amortization schedule.
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    "To clarify, I already had a mortgage account setup but the scheduled payment was only recording the total payment to a "Loan Payment" category and the loan account was simply posting an adjustment to itself for the principle."

    Since I've never set up an amortizing loan other than the correct way from an accounting standpoint and haven't really investigated the Category "Loan Payment" I'm not sure exactly what your situation is.
    My instinct when I first saw that Quicken had introduced that "Loan Payment" Category was that Quicken was pandering to people who wanted to see their entire loan payment - both principal and interest - as a form of "expense", but it sounds like something else was going on with respect to the principal of the loan itself.
    I take it from what you've said here, that you did set up the original loan properly - original balance, interest rate, term, and so forth - such that initially the loan showed up on your balance sheet as its original amount.  It also sounds like the recurring entry to the bank Account for the monthly payment DID lump principal and interest as a form of "expense" on a spending or budget report but Quicken, behind the scenes was making an accurate entry to the mortgage loan Account for the principal paid.  This would be an entry debiting (decreasing) the loan balance with the offsetting entry being make BACK INTO the loan Account itself.  (The programing behind Quicken treats this kind of entry as a reduction in a liability and an increase to your net worth - essentially your increasing "equity" in the house.)  In other words, your loan balance is properly stated and you've got some number of payments where the entire amount of each monthly payment shows up as a form of "expense" on a spending or budget report?

    If that's your situation and you want to get your history properly stated then you would need to edit each charge in the checking Account to the "Loan Payment" Category, substituting a split entry of principal and interest, (I'm ignoring the escrow for clarity), and eliminating Quicken's own entry to the loan's principal for that particular payment.
    I have no idea if you can now tell Quicken "stop posting my payments to the Loan Payment Category and start using a proper split between principal and interest.  (My guess is that you can't do that.)

    One approach that WILL get future payments properly split and have the split done automatically by Quicken would be to create a NEW loan Account, pretending that this is a new loan with an opening balance of whatever the loan's actual balance is at this time, with a term that's correct for the remaining term on the loan.  Quicken should calculate a monthly payment that's correct for your current loan and this time you tell Quicken to make the correct accounting entries, i.e., no more "Loan Payment" Category.  You'd zero out your current loan by making an entry into the Account, (a reduction),  that's the same as the loan's balance right now, with the offset being the same loan Account.
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