How can I manage my housing (or other) credit loan?
It's easy to manage your housing credit loan with Boonzi. However. it is important to understand how the housing credit loan works, given that this topic is usually misunderstood.
When you acquire an asset (house, car, etc) the bank conceeds you a loan that you use to pay the asset immediately.
The loan will be associated to an account (credit), with negative balance (equivalent to the total amount of the loan) and with special payment conditions (tax rate, payment period, etc) in the form of a monthly installment.
This way, a loan
should be inserted into Boonzi as a normal account
with negative balance
, as you will read below.
In other words, your financial total (the sum of all your accounts) may, in most cases, be negative.
Do not be alarmed if you look at your balance and find it to be negative - this is only your financial assets balance. The asset you acquired has a market value (usually higher than the total loan amount) that, when summed with your financial assets total, will, hopefully, make your position be positive.
Many people interpret the monthly installment as an expense charged by the bank. - "My bank charges me $300 every month". However, the installment
is typically composed by two or three components:
- Amortization: the decrease of your debt amount
- Interests: tax rate charged by the bank over the total amount loan
- Others: in some cases the installment can have other inherent expenses like the stamp duty.
This means that the $300 of the monthly installment are actually the sum
of the amortization (ex: $200), interests (ex: $90) and other maintenance expenses.
The amortization and interests are variable according to the amount in debt, the interests tax rate, the debt time period along with other variables. Some times, the interests value may be much higher than the amortization value or vice-versa.
Shoudn't be seen as an expense but as a decrease of the amount in debt
- meaning that, every time you amortize, you owe less money to the bank.
This debt amortization is made in the form of a transfer from your checkings account to your credit account.
If, in a $300 installment, $200 are amortizations, your checking account will have less $200 and your loan credit account with more $200. You will have less cash but you will also owe less.
This means that these $200 never left your financial assets. They were just used to deacrease the debt you acquired when you got the loan. That is why they shoudn't be seen as an expense.
Within Boonzi, an amortization
must be registered as a transfer
from your checkings account to your credit account so that this operation doesn't show in the reports as an expense. We will explain in detail if you continue reading.
It's the tax rate charged by your bank for the loan you have acquired. They are updated monthly according to the amount in debt, the debt period, the indexed tax rate you have chosen (usually, Euribor-xM) plus the spread, among others.
This means, everytime you amortize your debt, the interest rates that you are charged with next month will be lower (given that the Euribor remained constant).
If, for a $300 installment, $99 are interests, your checking account will have less $99. Interests
must be seen as an expense
charged by the bank where you acquired the loan.
The monthly installment may have, beyond the interests and amortizations, other components like, for example, the tax stamp or in some cases insurances. You should register these components as expenses
In short, loans are...
Imagine you have paid a monthly installment of $300:
- $200 are amortization, that will be registered as a transfer between accounts
- $99 are interests, that will be registered as an expense with the bank
- $1 is other expenses, like stamp duty, and will be registered as an expense
$300 = $200 + $99 + $1. As you can see, the best way to register a loan installment is to separate it into diferent components and register them separately in Boonzi.
You should also be able to see this discrimination on your online banking account.
How to manage the loan?
This is the easy part. You should start by creating an account
(credit) which corresponds to your loan:
- Login to your online banking and check the total amount in debt
- In Boonzi, navigate to Accounts under Configuration, on the main menu on the left, and click New account
- Fill the amount with the total of the debt (with a negative sign) and set the date for today
Every month, after paying the installment, you should check on your online banking statement for the installment components and:
- Create a new transfer transaction from your checkings account to your loan account with the amortization value.
- Create a new expense transaction in your checkings account setting your bank as the payee and Banking expenses:Interests (or others) as the category.
- If there are other expenses deluted in the installment, create new expense transactions for each one of them.
Afterwards your checkings account balance must have decreased, by the same amount as the installment value, and the balance of your loan account increased by the amount corresponding to the amortization value.
What should I do if I import my statements?
If, in your online banking statements, you only get the total installment value, after importing you must:
- Edit the transaction corresponding to the installment and change the amount so that it only contemplates the interests.
- Create a new transfer transaction corresponding to the amortization value. (see above)
In some online banking, in the checkings account statements you get the total installment value and in the loan account statements you get the separate components. In this case you must:
- Import the statements from both accounts
- Edit the transaction corresponding to the installment and set it as a transfer. (see above)
Naturally, you don't have to go into all this detail - this is only a suggestion for better managing your loan. However, if you do so, you will have more precise reports and flexibility when reading your data.
For example, when checking/unchecking the accounts under "Configuration", on the main menu on the left, you will be able to:
- Check all the accounts. You will get, for all the reports, the real amount of your expenses without the amortization values.
- Check all the accounts except for the loan account. In the "Cashflow" report you will be able to see, separately, the amortizations (transfers) and interests (expenses).
- Uncheck all the accounts except for the loan account. In the "Balance over time" you will be able to see the balance decreasing over time, helping you to analyse the evolution of the amortizations.