@burlingame

This may be overkill but I proceed anyway.

See below for a post I made back in December 2019 to provide some background. Not sure whether you have escrows.

You should link the mortgage to Tiller and that will take care of handling the debt.

If no escrows, then maybe split the $1,500 as follows:

Original principal = $100, interest = $900, extra principal = $500. The interest should be an expense and the other two should be transfers.

This is a general reply but it should get you started.

There are other ways to proceed based on what YOU want to see.

Let me know if there are questions.

Thanks,

Blake

…

I have never used the debt progress template, I paid off my home mortgage prior to subscribing to Tiller, and thus have no direct Tiller experience with the user’s situation.

However, I can provide some general information regarding your question that may be helpful.

Here are a couple of links that explain the mortgage payment structure, what an escrow account is, and how an escrow account works.

Investopedia

When you get a mortgage to buy a home, you need to understand the structure of your payments, so you know how expensive the whole thing will ultimately be.

https://www.quickenloans.com/learn/escrow-explained

Let’s say a lender loans the borrower $100,000 over 30 years. Let’s say the initial monthly payment is $600. Of that $600, let’s assume $500 is interest and $100 is principal. Let’s assume the lender requires an escrow but PMI is not required since you made a large down payment. Let’s assume the escrow includes only property taxes and homeowners insurance. Let’s assume the monthly amount for property taxes is $300 and the monthly amount for homeowners insurance is $50. Thus, your monthly payment is $950 and your debt is $100,000. The only portion of the $950 monthly payment that relates to debt is the $100.

The borrower writes a $950 check out of their checking account in the first month. The lender takes $500 out of the check and reduces the loan by $500, takes $100 of interest income as his reward for taking a risk and loaning you the money, and places the $300 plus $50 in an escrow account. After making 12 monthly payments, the following has happened: (1) the loan has been reduced by $1,200 dollars and is now $98,800, (2) the lender has earned $6,000 of interest income, (3) $3,600 is sitting in the escrow account for property taxes, and (4) $600 is sitting in the escrow account for homeowners insurance. The lender takes the $3,600 and pays the property tax bill and takes the $600 and pays the homeowners insurance bill and then the escrow account is back to zero and the process starts all over again.

Over the course of the year the borrower has written 12 checks for $950 each. Let’s assume the borrower assigned each of these payments to an expense category called mortgage payment in Tiller. If no adjustment is made in Tiller, the borrower has overstated their expenses for the year by $1,200 which happens to be the amount by which the loan has been reduced.

Each month, the borrower might consider splitting the $950 payment into four pieces/categories; principal, interest, property taxes, homeowners insurance. All of these categories would be expense items except principal would be a transfer item as far as the type. The principal category is a reduction of the loan and is not an expense. Although the property taxes and homeowners insurance are not really expenses until they are paid by the lender out of the funds held in the escrow account, the borrower might want to consider them as expenses when paid into the escrow account each month for simplicity purposes. To do otherwise might be to complex.

Let’s assume at the beginning of year two the borrower receives an inheritance and fully pays off the remaining loan balance of $98,800. No more principal is due and no more interest is due. However, the borrower themselves would now be responsible for paying the property tax and homeowners insurance bills when they come due. The borrower would record the property tax expense and the homeowners insurance expense in full at the time the bill is paid.

I realize all this may be obvious but sometimes it is best to provide an illustration with numbers.

I hope this helps.

Thanks,

Blake