Managing mortgages within PocketSmith

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

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.

The simplest method is to track your mortgage account as a balance-only account and only track the mortgage payments coming out of your main account.

Alternative setups include tracking the repayments arriving in the mortgage account, treating the entire repayment as an expense, or only tracking the interest portion as an expense while treating the rest of the mortgage repayment as a transfer to the 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 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! 

Tracking mortgages using Track Balance changes 📉

The simplest way to include your Mortgage is to use our ' Track Balance changes' feature to track the balance of the account. This means you only need to track and categorize the repayment transactions leaving your main bank account, which is simpler than managing separate repayment and transfer transactions.

This method has a few steps when first setting it up, but will be the easiest method to easily view your mortgage repayments as an expense while keeping your mortgage account balances up to date for a better overview of your total net worth! ✨

Reasons to set up a mortgage in this way

This method is great if you are wanting to have your mortgage accounts in your PocketSmith for an accurate overview of your current net worth while being able to easily budget for your repayments.

Using Track Balance Changes

For most transactional accounts in PocketSmith, the historic balances are calculated based on transaction data within the account. However, our new Track Balance Changes feature has been designed to accurately keep a record of any balance changes as they occur, without the need for transactions.

Using this feature on your mortgage accounts means that their balance will always be kept up to date in your PocketSmith! This means you can set up a filter to delete all transactions within these mortgage accounts and will only need to categorize outgoing transactions to track your mortgage.

Enabling Track Balance Changes on your mortgage account

1. Head to the Account Summary ( Manage > Account Summary)

2. Navigate to the bank account that you want to change the preferences for, click MANAGE ACCOUNT, then click  Other settings

   

3. Tick ' Track balance changes for this account', then click SAVE

   

The Track balance changes feature is now enabled! 🙌 

Create a filter to delete transactions within the mortgage account

To delete the transactions within your mortgage account, you'll need to create a filter.

To do this:

1. Head to the Transactions page, and click on the Magnifying glass to open the Search panel.

2. Select the mortgage account(s) you'd like to delete transactions from and click MAKE FILTER 

   Warning

   Ensure you only select your mortgage account(s) here - that is the loan accounts themselves - as you do not want to permanently delete all transactions from any other accounts.

   

3. Then, when choosing which actions to apply, check  Delete.

   
   

   Ensure you tick the checkbox ' Apply filter to matching transactions', then click  SAVE FILTER

   

4. Give your filter a name and click  OK

This now means that all transactions within the mortgage account, both those already imported and any future transactions, will be deleted. As such, you will only need to categorize the expense side of your mortgage repayments leaving your bank account 🎉

Category & Budget setup for mortgage repayments leaving your main account

Now that transactions are no longer imported for the Mortgage account, you will only need to categorize transactions that are leaving your main account 🙌

Categories:

If you have multiple mortgages, we recommend creating a separate category per mortgage, with each mortgage repayment assigned to its respective category.

For example:

Home loan 1 - Repayments (expense category)

Home loan 2 - Repayments (expense category)

This will make it easier to budget for each individual repayment, as you can set an expense budget for each repayment, matching the amount and frequency for each. This will make viewing these repayments easier on the Budget page, Dashboard, PocketSmith reports, and on the Calendar.

We recommend setting up filters to automatically categorize these transactions into the correct category. 

Budgets:

For each home loan, create an expense budget reflecting the amount and frequency of your mortgage repayment.

For example, if you have two mortgages with one repayment set to $2000/month  Home loan 1, and a second repayment for $400 on the same dates for Home loan 2 - you would create the following budgets, assigned to the account the payments are made from:

Home loan 1 - (monthly expense budget for $2000)

Home loan 2 - (monthly expense budget for $400)

Forecasting the balance for Mortgage accounts that use 'track balance changes'

To forecast the decreasing debt owing for your mortgages, you will need to create two new transfer categories for each mortgage account, with one budget assigned to each.

Using transfer categories for this means you will be able to forecast the decreasing debt on each account, and these budgets will not have any effect on your overall budget summary. This is because budgets set up against a transfer category are excluded from the Budget summary.

Category setup for forecasting:

First, you will need to create two separate transfer categories for each of your mortgage accounts. For example:

• Home Loan 1 Repayment Forecast
• Home Loan 1 Interest Forecast
• Home Loan 2 Repayment Forecast
• Home Loan 2 Interest Forecast

Budget setup for forecasting:

You will now need to create a budget for each of these transfer categories, as detailed below.

Home Loan 1 Repayment Forecast (transfer category, income budget)

Home Loan 1 Interest Forecast (transfer category, expense budget)

1. Create an income budget against the ' Home Loan Repayment Forecast' category, ensuring that the ' This is a transfer from' section is left blank, with no account selected, as shown in the example screenshot below:

   

2. Create an expense budget against the ' Home Loan Interest Forecast' category, ensuring that the ' This is a transfer to' section is left blank, with no account selected, as shown in the example screenshot below:

   

With the budgets set up, your mortgage balance will be forecast to reduce by your repayment amounts less interest, allowing you to see how your mortgage may look in the future!

You can view the forecast for your accounts over on the Calendar. To learn more about using the Calendar and forecast, check out: Using the Calendar and Forecast graph

Updating the interest budget periodically:

For the  Home Loan Interest Forecast category, we recommend regularly updating the budget amount using the calendar page and selecting ' This and future budget events' option when applying any changes to more closely match the actual interest charged for your loan. This way, you can ensure that your forecast remains up-to-date and more accurate.

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 that 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 repayments category, and ensure that this is set up as a transfer category.
2. Assign both sides of the transfer to your  Mortgage repayments 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 repayments 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.

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 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.