Setting up mortgage payments

[prl]

On 10/01/13 07:52, Mike or Penny Novack wrote:
>
>> Programs for checking your mortgage repayments suitable for Australia
>> are on sale. The calculations are not easy for pen and paper work, but
>> easily computerised. Prediction isn't required, so Mike doesn't need a
>> crystal ball, but there would be some interest in checking after the
>> event.
>>
>>
> I didn't think we were talking about CHECKING mortgage payments (after 
> the fact) but being able to SCHEDULE mortgage payments (set up 
> scheduled transactions in gnucash). I was referring to the 
> impossibility of scheduling (with the amounts) when the amounts might 
> change before the scheduled payment was due.
I'm not sure what others were talking about, but I wasn't talking about 
problems setting up mortgage schedule payments. The minimum payments I 
can make on my mortgage are fixed, and at intervals that GnuCash can 
work with, so that bit works very nicely in GnuCash. I make advance 
payments at irregular times that suit me, and they're entered as manual 
transactions.

What I can't do with any useful level of convenience is calculate the 
interest that should be debited at the end of each month. That's my main 
variable, and its calculation is complicated by all the factors I 
mentioned in my earlier email.
> There is NO problem about entering mortgage payments manually once the 
> amounts are known.
I know these in advance.

It is also possible in principle for me to accurately forecast the 
interest that I will be charged (except when there is an interest rate 
change in the month). It's just a bit messy, since it will be at least 
the sum of three (or four, in the case of 3 repayments in the month) 
interest calculations: on the month's opening balance up to the first 
payment, on the balance between the first and second payment, and on the 
balance from the second payment to the end of the month (when interest 
is debited). The first and second payment are on variable dates in the 
month, since the repayments are fortnightly on Mondays. That means that 
there's no single formula using balance at date that will work for every 
month, which makes creating an SX for the interest infeasible IMO.

And that's all without interest rate changes or additional repayments on 
days other than my normal payment days.

I think that Derek has misread what I've written about variations of my 
interest rate, though. My interest rate can change on any day, but it 
doesn't really "potentially change every day". It's changed twice in the 
~six months since the start of the mortgage. The first change was on the 
15th of the month, the second on 24th of the month. Both downwards :)

Anyway, I handle the interest in the same way that I handled it when I 
had a similar amount of money in a savings investment account - I simply 
add an interest transaction at reconciliation time, with the amount 
taken from my statement. The fact that at this stage in the mortgage 
repayment, the monthly interest amount doesn't change by much means that 
it's easy to detect any gross errors.
> ... snip ...
There's one other further complicating feature in my mortgage, but I 
don't intend to use it. The mortgage, as well as allowing drawings on 
advance payments, also allows for the establishment of an offset account 
tied to it. No interest is paid on the offset account, but the mortgage 
interest is calculated on the difference between the mortgage balance 
and the offset account balance.

To handle interest calculations for this in Gnucash, a 
balance-at-date-in-specified-account function would be needed.

In Australia there are tax advantages in an offset account, because 
while interest income is taxable, there is no tax on interest payments 
saved in this way (and there is no tax deduction for interest payments 
on the mortgage of your main residence). However, there are no tax or 
any other advantages of an offset account on my mortgage over the 
ability to draw on advance payments. I'm not sure why the bank offers it 
as an option, especially since there's an (IMO outrageous) AUD8/month 
account fee on the offset account, but no charges for advance payments 
or withdrawals against them.

Theres's more information about this sort of mortgage in Wikipedia: 
http://en.wikipedia.org/wiki/Flexible_mortgage (where it says that in 
the US, it's called an Australian mortgage, because it first appeared here).

I suspect that this kind of mortgage is as foreign to most US 
mortgage-holders as an escrow account is to me.

To misquote Hamlet: "There are more things in the world-wide mortgage 
market, Horatio, than are dreamt of in your philosophy."

Peter