Managing mortgages within PocketSmith

How a mortgage is set up and tracked in PocketSmith can vary from one user to the next! Check out the options below to get your mortgage set up in PocketSmith in a way that best suits you 🏠⚡️

In this user guide

Overview

After gaining feedback from our users 🗣, we've learned that there are different ways in which people like to set up and track their mortgage in PocketSmith. Some would like to track their entire repayment as an expense, and others would rather just track the interest portion of their mortgage repayment as an expense, and treat the rest as a transfer to their home loan.

Because mortgages can vary in how they are set up from bank to bank, this means that mortgage transactions 🏡 imported into PocketSmith aren't always the same from one user's PocketSmith account to the next. This also needs to be considered when deciding whether to categorize mortgage transactions as expenses or transfers.

In the following sections of this user guide, we've tried to cover the most common ways to set up a mortgage in PocketSmith. If the options below don't work for you, please just get in touch with some detail about your mortgage and how you'd like to track it. We'll do our best to come up with an option for you! 


Categorizing mortgage repayments as an expense 
(with the interest portion as a transfer) 

Reasons to set up a mortgage in this way

This option is best if you want to see your principal mortgage repayments as an expense in PocketSmith reports and budgets, but also want accurate net worth forecasting that takes into account the reduction in your loan balance as well as the interest charges.

Category set up

In order to manage your mortgage within PocketSmith in this way, you'll need to create three unique categories, for example:

  • Mortgage repayments outgoing  (regular category) 
  • Mortgage transfer  (transfer category)
  • Mortgage interest  (transfer category)
1
You'll need to assign each side of the Mortgage repayment to a  separate category.

  • Assign the debit transaction to the Mortgage repayments outgoing category
  • Assign the credit to the mortgage account to the Mortgage repayments transfer category
2
Assign the interest transactions that are debited from your mortgage account to the Mortgage interest category
3
Ensure that both the Mortgage transfer and Mortgage Interest categories are set up as  transfer categories.  

Budget set up

In order for accurate forecasting of your net worth, you'll need to set up the following Budgets.

  • Mortgage repayments outgoing - Expense budget
  • Mortgage transfer - Income budget
  • Mortgage interest - Expense budget
1
Create an expense budget for your Mortgage repayments outgoing category.
This will allow you to track your expense payments in your overall budgeted figures and this will also be reflected in your account forecast. 

2
Create an income budget for your Mortage transfer category.
As this is a transfer category, the credit to your Mortgage account won't be counted as income, but the budget will account for the credit arriving in the account, providing accurate forecasting for your loan balance.
3
In order for your interest payments to be reflected in your forecast, you'll also need to create an expense budget for your Mortgage Interest category.
Because this is a transfer category, the budget ensures that the interest is not counted as an expense, but allows for accurate forecasting for your loan balance.  

For detail on how to create a new budget please see: Creating a new budget

How this will affect your PocketSmith reports 

Categorizing and budgeting your mortgage repayments and interest charges in this way will mean that your principal mortgage repayment will show as an expense in PocketSmith reporting and will also be included in your overall budgeted figures.

The credit to your mortgage account and the deduction of any interest will allow for accurate forecasting for your mortgage account. 


Categorizing mortgage repayments as transfers 
(with the interest portion as an expense)

Reasons to set up a mortgage in this way

There are a few reasons for why you may want to categorize your mortgage repayments as transfers: 

  • Accurate forecasting of net worth:
    If your home loan is included in PocketSmith as a loan account or liability and your mortgage repayments are paid into the loan account or liability, your overall net worth doesn't change. Therefore that movement of money from one account to another (eg. from an everyday account to a loan account) isn't seen as an expense, because what is debited from one account is then credited to another.
  • Prevents double-counting your expenses, ie. the principal payment and the interest payment. The interest portion can be categorized as an expense to reflect the true cost 

To accurately represent net worth, it's best to categorize the mortgage repayment into the loan account as a transfer, and then treat the actual interest transactions that are automatically debited from the loan account as the expense - the interest transactions within the mortgage account are what causes a change in your net worth.  

A good way to think about this is similar to how one might treat savings or investments - savings and mortgage payments are actually quite similar! With both of these, money is just being moved from one account to another account and the transfer of savings isn't really considered an expense.

Category set up 

In order to manage your mortgage within PocketSmith in this way, you'll need to create 2 unique categories, for example:

  • Mortgage repayments (transfer)
  • Mortgage interest (regular category)
1
Assign your mortgage repayments to your  Mortgage payments category, and ensure that this is set up as a transfer category.
2
Assign both sides of the transfer to your  Mortgage payments category (for example, the transaction leaving one account, and then that same transaction entering another)
3
Assign the interest transactions that are debited from your mortgage account to the Mortgage interest category

Budget set up

In order for your Net Worth forecast to be accurate, you'll need to set up the following budgets:

  • A transfer budget for your Mortgage repayments category
  • An expense budget for your Mortgage interest category
1
Create a transfer budget for your Mortgage payments category.
This will allow you to track your transferred payments and it will also allow PocketSmith to create an accurate forecast of your future account balances. Check out our user guide:  Creating a transfer budget.
2
In order for your Interest payments to be reflected in your forecast, you'll also need to create an expense budget for your Mortgage Interest category. For detail on how to create a budget see: Creating a new budget.

How this will affect your PocketSmith reports 

By treating your principal Mortgage payments as a transfer, they will not be reflected on the Earning & Spending chart on the Dashboard nor in your overall spending budget at the top of the Budget page. Any Interest transactions will show as an expense.

Users can still create budgets for mortgage payments if they are set up as transfers so that they can be tracked! With a transfer budget set up, PocketSmith will automatically match the credit transaction to the debit transaction (or vice versa) for that budget, which will allow the user to keep track of their mortgage payments, and also allow PocketSmith to be able to create an accurate forecast of their future account balances. Check out our user guide:   Creating a transfer budget.

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