Mortgages: Tracking a Revolving Credit mortgage

A Revolving Credit mortgage differs from other mortgage types in that there are generally no set repayments, so you will only have interest charges for this specific loan account. In addition, utilising this type of mortgage usually involves managing the majority of your income and expenses, as well as any savings within a single Revolving Credit account.

What is a Revolving Credit mortgage? A Revolving Credit mortgage is a home loan that is structured like a large overdraft. Rather than repaying a lump-sum amount on a fixed schedule, you are given a credit limit facility that, if you draw down on it, can be repaid as your cash flow allows. You can draw down on the loan within that limit as needed. Typically, all of your income is funnelled into the account, and you keep any savings there as well. Bills and everyday spending are paid from the account as needed. Usually, people with a revolving mortgage use it alongside a ‘fixed mortgage’, which has a fixed repayment schedule. This type of loan offers flexibility, as, if you have drawn down on the loan, you can repay lump sums without being penalised and use any income or savings to immediately reduce interest. You can also redraw funds later if you need them for emergencies or for home improvements.

Some people use a Revolving Credit loan as a way to aggressively pay down chunks of their mortgage, whereas others use them more like an emergency fund - there in case you need it. If using it to pay down a mortgage aggressively, the goal is to start off in debt and then get the balance back to $0 as soon as possible. Then, when the fixed loan is up for renewal, the borrower can draw down to the limit again, using those funds to reduce the fixed mortgage balance before its next term. If the Revolving Credit is being used as an overdraft or emergency fund, then you may start off in credit, but draw down on the loan as needed, for example, for unexpected expenses or home renovations, and then repay this as cash flow allows. If you have a Revolving credit mortgage, the way it is managed in PocketSmith can vary depending on your goal for the mortgage. Read on to learn more about how to manage this type of mortgage in PocketSmith.

When you add a Revolving credit mortgage to PocketSmith, you will either want to display the ‘Available balance’ or the ‘Current balance’.

If you have drawn down funds (i.e. you have money owing):

For example, if you drew down to your credit limit of $20,000, but have since repaid $5000:

If you are in credit (i.e. you have no money owing):

For example, if you have not drawn down your loan, or have repaid your credit limit, and have $500 of funds within the account:

Which option should I choose? You can choose either option, but your preference may vary depending on your goal for using a Revolving credit mortgage.

If you are choosing to use the ‘Available balance’ option, then we recommend adding a ‘Debt’ matching credit limit to PocketSmith, so you aren’t including the credit limit available as part of your Net Worth.

For example, if you have a $20,000 credit limit and choose to display the ‘Available balance’ option, you would add a $20,000 debt to PocketSmith.

To learn how to add a debt to your PocketSmith, see: Managing your assets and debts

In order to track any Interest charges for your Revolving credit mortgage charges, you'll need to create a unique category to assign these transactions to. Ensure this is set up as an expense category.

As interest charges in a Revolving credit account are based on the account’s balance, it can be tricky to budget for them accurately. As such, we recommend setting up a budget that reflects the average interest repayment amount, and then updating it periodically to more closely reflect actual interest repayments.

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

If your loan drawdown and redraw transactions appear in your mortgage account, we recommend treating them as transfers so they do not appear as income or expenses in your reports or budgets. We recommend assigning them to a unique transfer category, just for drawdowns or redraws, for example, titled Loan drawdown transfers For more on managing loan drawdown transactions, see Mortgages: Property purchase and loan drawdown transactions

As Revolving Credit mortgages typically involve handling almost all of your financial transactions through one account, it can feel tricky to manage your income and expenses and ensure you are making progress toward paying down the loan balance or keeping your account balance as close to $0 as possible. The simplest way to manage this is to:

For all the details on how to set up budgets, see: Tips and tricks for creating budgets in PocketSmith

The forecasting feature in PocketSmith uses the current account balance and applies any budgets to it to project your account’s balance for any future date (up to 60 years, depending on your subscription). Once your budgets are set up, head to the Calendar, or use the Balance graph widget to see how the account balance is forecast to change over time. This will help you see whether you are forecast to have enough funds to cover all necessary expenses and/or whether you are on track to pay off the credit limit. For more on viewing your forecast, see: Using the Calendar and Forecast For details on the Balance graph widget, see: Balance graph widget

Looking ahead on the Calendar:

If you want a more granular approach to managing all of your funds within a single account, which allows you to see a breakdown of the funds you have set aside, you may like to check out this guide: Managing savings: Within only one account