Accounting for mortgages

I'm wondering whether it is worthwhile to go into details when repaying a mortgage. For instance, say I repay 1000$ each month to the bank, should I split that amount into capital and interest and keep a tracking account that shows how much capital I still owe?

Why or why not should I go into the trouble when I know the cost is 1000$ each month?

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  • I just track the total payment and look at my statement if I need to know more details.

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  • This is a pretty old blog post, but still a great one - Why You Think You Want to Track Your Car Loan in YNAB (But You Don't Really Want To).  The title points at car loans, but it's really the case for any loan. Ask yourself what you're trying to get out of tracking those split amounts and if the extra steps would provide you with any information that would be helpful. 

    Personally, having a constant reminder of how much I pay in mortgage interest wouldn't be helpful to my budget, but some YNABers see this as motivation. It all depends on the person. :)

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      • PhysicsGal
      • Nerdy female homo sapien
      • physicsgal
      • 4 mths ago
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      Faness Hmm, I've never considered tracking P+I and escrow expenses separately, but maybe it would inspire me to want to pay off my loan sooner?  Something to consider.  But I'm not sure it's worth the extra work.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 4 mths ago
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      PhysicsGal I've always split my mortgage payment according to the breakout. It gave me a separate set of numbers to make sure that the mortgage servicer was actually distributing the money correctly.

      If you have the tracking accounts then there really isn't extra work, just different work.

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  • The other reason is to track your net worth in YNAB which I personally like to do. You would add an offsetting home value asset too. I've been doing this since 2012 and I love seeing the history and progress of my net worth on the net worth graph. Net worth is your ultimate scorecard for your personal finances. I just add a repeating transfer each month and then I add the corresponding interest amount.

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  • For people living in countries with offset accounts*, it can be worthwhile to add a tracking account for the mortgage. Then the net worth graph can directly give you the net "debt" by summing all the tracking accounts and subtracting the debt left in the mortgage. The net debt notion is true for all, but people with offset accounts might keep more liquidity in checking/savings than others.

    * offset accounts here are defined so that interests on a mortgage are calculated on the difference between the mortgage balance and the checking/savings accounts offsetting that mortgage.

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  • Thank you so much everyone for the feedback. Great community.

    I can now make a choice.

    I think I will select the "parsimonious" option - although I understand the argument about tracking net worth too :-)

    Thanks again!

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  • I track my mortgage, but instead of doing a split transaction like you suggested, I transfer the full amount into my mortgage tracking account, transaction categorized as simply Mortgage, and then in the mortgage account I do interest as an outflow. That really simplifies adding my mortgage payment, and then I can go back and add in the interest later. I think doing it as a split transaction can get really mucky; you absolutely don't want to budget for principal and interest separately, so you'd end up splitting the transaction but giving it all the same category?

     

    For me the big benefit of tracking my mortgage was when I did my cash-out refinance, the money didn't just come from nowhere and my net worth only decreased by my closing costs.

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    • Alemap
    • Everything should be made as simple as possible, but not simpler -Albert Einstein
    • alemap
    • 4 mths ago
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    Here's another possible option that I use. Budget for your mortgage payment as one total monthly amount without any splits. Separately, set up tracking accounts for home asset and mortgage.

    Every month I go in to the loan tracking account and reconcile using the principal balance in my statement. It doesn't match, of course, and I have YNAB automatically enter an adjustment entry. I change the transaction name to monthly principal payment and I'm done.

    Easy-peasy and I still get to watch my mortgage principal go down every month.

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      • Melissa
      • Routinely questioning every assumption I have about my budget, my spending, and my savings habits.
      • todays_mel
      • 4 mths ago
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      Alemap  My process is nearly the same as yours, with the exception that I use the principal payment listed on my monthly mortgage statement and record that as an Inflow to the Tracking account side. (I also set up a recurring transaction on that tracking account, so I get a reminder to update the Inflow each month.)

      But the end result is the same - I get to see that balance shrink every month - almost $3500 this year! :)

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  • Yes, it's definitely worthwhile to go into details when repaying a mortgage. There is a lot you can manage and save in the long run. I have tried to be most effective in my approach always and suggest friends the same thing.  I came across this website, which has a very effective mortgage payoff calculator.  I was able to see the bigger picture using it. Hope this helps.

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      • dakinemaui
      • dakinemaui
      • 4 mths ago
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      Harsh Doing the extra work to track the "details" in YNAB is quite different than being aware there are gains to be had. Plugging the current balance (easily found on the monthly statement) into a calculator is far easier in my opinion.

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      • Harsh
      • Trying to make finance simpler.
      • Sky_Blue_Chef.12
      • 4 mths ago
      • Reported - view

      dakinemaui  You make a good point there.

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