how to setup a revolving credit facility account

Robert Ramsdell rcriii at ramsdells.net
Sun Jun 3 21:06:20 EDT 2007


David,

The way I see it, you have three accounts here:
Assets:Home to record the value of your home
Liabilities: Mortgage to record you fixed interest mortgage
Liabilities: Revolving credit for the revolving line

If you treat the revolving line like a checking account then:

salary will be a transfer from income:salary -> liabilities:Revolving
groceries will be a transfer from
liabilities:Revolving->expenses:groceries
interest on the loan will be a transfer from
liabilities:Revolving->expenses:interest
payments from the revolver to the mortgage will be transfers from
liabilities:Revolving->liabilities:Mortgage

The equity in your home will be the difference between the value of
assets:home and the two liabilities.

Note that gnucash does not have the facility to keep track of the
available credit.  However, this is not really an asset such as cash...

Robert

On Sat, 2007-06-02 at 13:31 +1200, David Latham wrote: 
> Thanks Ariel,
> 
> I will try to explain it a little bit better.
> 
> The revolving credit account is a type of home loan.
> 
> When I look at my balance on on line banking, I have an available
> balance and a balance outstanding for the same account.  The available
> balance is really the portion of the loan that I can draw down on.  The
> way it works is like this:
> 
> Example: 
> # Opening Total outstanding balance = 30,000 [LIABILITY]
> # Salary into account.  > Total outstanding balance is now 25,000
> [REDUCED LIABILITY]
>         Available balance is now 5,000 [INCREASED EQUITY AND CURRENT
> ASSET (CASH)]
> # Spend some money on Groceries = 100 [EXPENSE]
>         Available balance is now 4,900 [REDUCED CASH]
>         Outstanding on loan is now 25,100 [NET LIABILITY]
> # Net equity = 4,900 = current cash.  (The loan is a combination of a
> cash account and a liability account.)
> 
> Note: in order to service this loan, the bank charge interest.  The
> interest is calculated daily so the longer I keep my funds in the
> account the less interest I have to pay.  The other thing that happens
> is that over the period of the loan, maximum amount available for cash
> is reduced.  The idea is that after 3 years or so, I transfer the loan
> to the fixed interest portion of my home loan and draw down another
> 30,000 for the revolving credit facility... :)  Its all in an effort to
> reduce the time spent paying back the loan and therefor the total
> interest paid...  Hopefully it will work.  My broker said it would and
> hes a good man.  (don't worry, Ive done my due diligence and researched
> it all myself)
> 
> I know that I can always link the cash account with the liability
> portion, but then I loose the ability to generate reports on things like
> groceries and income etc.
> 
> At the end of any given cycle I would like to be able to get a report
> that has these figures in it:
> 
> Current Account: 4,900
> Liability              : 25,100
> Groceries          : 100
> Salary               : 5000
> 
> The problem with a credit card is that Available credit is not really an
> asset.  Or am I wrong in this.  A credit card facility is, so far as I
> know, a liability.  The difference with a revolving credit facility is
> that, because its a type of home loan, any payments made into the
> account can be interpreted as an INCREASE in equity.  ( These payments
> immediately contribute to the home loan, thus reducing the outstanding
> amount on the loan, thus increasing personal equity. )
> 
> See what I mean?
> 
> Thanks again, and looking forward to seeing how it all works.




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