Setting up mortgage payments

[David Carlson]

On 1/3/2013 6:24 PM, prl wrote:
> GnuCash's model of a mortgage is far to simpleminded for my needs. I
> think that part of the problem lies with the huge variety of mortgage
> products available to the GnuCash userbase. For example, I have no
> idea what a "mortgage escrow" is. I don't even know whether it's a
> familiar concept with a different name or a concept that simply
> doesn't exist in residential mortgages in Australia.
>
> My mortgage is variable interest rate (two changes downwards in the
> last six months), interest is calculated daily and charged monthly,
> interest is capitalised back into the loan, my repayments are at a
> different interval (fortnightly) from the interest charges, I can make
> advance payments at any time, and I can draw against any advance
> payments at any time. The latter feature allows me to effectively use
> the mortgage as a high-interest, tax-free savings investment account
> (the "interest" is interest savings at the mortgate rate, 5.55% vs the
> savings investment account I was using, 3.25%).
>
> This is all way too much for GnuCash's mortgage function to deal with.
> It assumes fixed rate, fixed term mortgages.
>
> I have a scheduled transaction for my regular mortgage re-payments,
> manual transactions for advance payments and draws, and manual
> transactions entered at reconciliation for the interest charges. This
> treatment of interest is exactly the same as the way it GnuCash
> handles it in my savings and credit card accounts, except that the
> amount of the interest is much bigger :( Regular advance payments can
> easily be accommodated in this scheme by either rolling them into the
> regular mortgage payment of having separate scheduled transactions for
> the bank-mandated and the additional payments.
>
> Peter
>
>

Peter,

Since you are not paying a U.S. mortgage, you don't really need to know
what Escrow means, but in case you are curious, American mortgage
lenders often (but not always) collect the funds necessary to pay real
estate taxes and homeowners insurance along with the Principal and
Interest and then pay those bills for the borrower.  That is another way
to make more money, because they want to have the money several months
earlier than it is needed to pay those bills.  They call that Escrow,
but some of us have other unprintable names for it.

It is possible to negotiate a mortgage without an Escrow account, but it
usually means borrowing less, and only from certain lenders.  Here in
Illinois
several banks will waive escrow if you get a fixed interest loan for
less than 80% of the appraised value, and there is a state law that if
the loan is less than 50%, the borrower can refuse to pay escrow. 

Escrow is only one of many tools that lenders can use to extract
additional funds from borrowers.

I also do not ask GnuCash to calculate my mortgage payment.  I have a
scheduled payment that is an estimate only, then I plug in the lender's
numbers when I get them.
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