Marking mortgage payments as an expense

Richard Estill estill at
Thu Jan 30 18:53:34 CST 2003

Yea. I started using gnucash after reading that very same book.

I address the issue by doing a split transaction.  1)Principal, brings
down the liability and 2)the rest, which is an expense. 

I hope more people read that book.  It brings a whole different view of


On Thu, 2003-01-30 at 01:49, Kevin Benton wrote:
> Not if you record it that way...  Any payment we make is both an asset and a
> liability.  In this case, it's both an asset and a liability for both
> parties.
> In accounting terms, a mortgage is generally an expense for the borrower,
> and generally an asset for the lender.  When the borrower makes a mortgage
> payment, cash goes to principal reduction, interest payment, tax and
> insurance escrows (if escrow accounts are used).  If you're trying to record
> the entire mortgage payment as a liability, that's not completely true.  A
> percentage of it goes toward returning the equity to the home (hopefully, an
> increasing future asset on your part), decreasing the liability left in the
> mortgage principal.  The rest goes to the lender, insurance company, and
> government.
> In my own mind, however, my personally owned home (mortgage or not) that I
> use for my residence is a complete liability until I sell it.  Why?  No
> matter what I do, my home does not put more money in my pocket than it takes
> out until I sell it or rent it out.  Even if I rent it out, it's still a
> liability until it produces more cash than it uses.  To me, an asset is
> something that puts money in my pocket.  A liability is something that takes
> money out of my pocket.  Rich people buy assets, poor people buy
> liabilities, and middle class people buy liabilities they think are assets
> (bigger homes, cars, boats, airplanes, etc).  (Sorry guys - I've been
> reading too much "Rich Dad, Poor Dad" lately.  :)
> To address this issue, I would consider doing this:
> Mortgage Payment	        $(750)
> Mortgage Principal         $100 (Your future asset, Unpaid balance is
> lender's current & future asset)
> Mortgage Interest          $525 (Your current liability, Lender's current
> asset)
> Mortgage Insurance Escrow   $50 (Insurance Co's asset, Lender's liability)
> Housing Tax Escrow          $75 (Government's asset, Lender's liability)
> Now - what's left?  If your equity was $n before the transaction, it's now
> $n+$100, not $n+$750.  In order to do this effectively, you have to know how
> much of your payment is actually going to principal reduction.  Is it
> doable?  Yes.  Is it easy?  Not necessarily.  Lenders aren't consistent on
> how they apply payments to loans.  How much of the payment goes toward
> principal reduction depends on your contract terms (when the payment is
> applied, the interest rate, the compounding, etc.).  If it were me doing it,
> I would make a close approximation, then when the tax forms came back from
> the lender at the end of the year, I'd adjust it to the real values.  If I
> felt their calculation and mine were too far apart, I'd challenge them on
> it.
> What do you do about the escrow accounts?  As money is taken out of them,
> you would have new line items (as handled by the lender since your escrow is
> their liability)...
> Mortgage Insurance Escrow Disbursement $(600)
> Mortgage Insurance                      $600
> Net result?  Over a year's time, you should have a net zero amount in your
> escrow accounts, some money added to your future principal asset and some
> taken away from your interest liability.  Reality, however, says that Escrow
> accounts rarely balance out because many lenders don't handle the
> computations properly.  (Yes, I know they can add, but they're lazy
> sometimes and just get it close and charge us something close to the
> difference next year.)
> To figure these problems out, I often think of the balance sheets of
> everyone involved.  Technically (even though it's not legal), we truly do
> operate off multiple balance sheets even if we're not consciously aware of
> it.  As you can see in the example above, your asset is someone else's
> liability (even if they don't know it yet :).  Your liability is someone
> else's asset.
> Kevin Benton - PFA
> kevinb at
> -----Original Message-----
> From: Dale Alspach [mailto:alspach at]
> Sent: Wednesday, January 29, 2003 8:57 PM
> To: lduperval at
> Cc: gnucash-user at
> Subject: Re: Marking mortgage payments as an expense 
> I don't think you can. By expensing the mortgage payments you are
> not decreasing the liability. To decrease the liability money has
> to come from somewhere. You could trash the equity to do this but
> this will throw off other standard accounting computations.
> Dale Alspach
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