I have read the posts here dealing with having a house with a mortgage on it and the calculation of net worth.
I am not sure KMyMoney is working correctly or, more likely, I don't understand it.
I understand that the value in the house ledger is supposed to be the equity but that makes the net worth calculation inaccurate.
Examples with real world numbers as in my case.

A) House value = $225,000
B) Mortgage = $80,000
C) Equity = $145,000

If I enter the $145,000 equity into the house account then the net worth report shows a net worth of $65,000 ($145,000 - $80,000).
Whereas the proper net worth is $145,000, the same as the equity.

Color me confused.
And you have a terrific product here. I was a died in the wool MS-Money and Quicken user and have abandoned Quicken last week.

thanks,
George

Let's take a look at the underlying transactions:

Code: Select all

Equity   -> House: 145,000
Mortgage -> House:  80,000


which leaves the following balances (assuming all account balances before the transactions were entered are 0)::

Code: Select all

Equity:   -145,000
House:    +225,000
Mortgage:  -80,000


which results in a net worth = assets + liabilities = +225,000 - -80,000 = +145,000.

And that's how I think it's supposed to work. But look at these screen shots.

Shows the house with the equity at $138,734
http://i49.tinypic.com/2zptxsk.png

Shows the mortgage at $81,266
http://i48.tinypic.com/i6vx9t.png

In my mind the report should show a net worth of $138,734, the house value 220000 less the mortgage of 81266
http://i50.tinypic.com/34zljeg.png

Where ama I going wrong ?

thanks

ipwizard wrote:Let's take a look at the underlying transactions:

Code: Select all

Equity   -> House: 145,000
Mortgage -> House:  80,000


which leaves the following balances (assuming all account balances before the transactions were entered are 0)::

Code: Select all

Equity:   -145,000
House:    +225,000
Mortgage:  -80,000


which results in a net worth = assets + liabilities = +225,000 - -80,000 = +145,000.

I just posted some screen shots from another PC. In your example, the net worth report will not do a double minus, minus to add them together.
The answer will be 145,000 - 80,000 = 65,000 when as you state, it should be 225,000 - 80,000

Totally incompetent, but my two cents anyway: I think the equity is a derived quantity; not a primary quantity. The house should be valued at $225,000 in the house account.

The house should be valued at $220K, because that's the house actual value. How you are paying for it (and thus, the 80K mortgage), is a different issue.

gcash wrote:And that's how I think it's supposed to work. But look at these screen shots.

Shows the house with the equity at $138,734
http://i49.tinypic.com/2zptxsk.png

Shows the mortgage at $81,266
http://i48.tinypic.com/i6vx9t.png

In my mind the report should show a net worth of $138,734, the house value 220000 less the mortgage of 81266
http://i50.tinypic.com/34zljeg.png

Where ama I going wrong ?

thanks

Hei Ku wrote:The house should be valued at $220K, because that's the house actual value. How you are paying for it (and thus, the 80K mortgage), is a different issue.

gcash wrote:And that's how I think it's supposed to work. But look at these screen shots.

Shows the house with the equity at $138,734
http://i49.tinypic.com/2zptxsk.png

Shows the mortgage at $81,266
http://i48.tinypic.com/i6vx9t.png

In my mind the report should show a net worth of $138,734, the house value 220000 less the mortgage of 81266
http://i50.tinypic.com/34zljeg.png

Where ama I going wrong ?

thanks

That's the way I thought it would work and I will try it tomorrow when I get back to my PC.
However I seem to remember doing that when I 1st started and another number somewhere came up wrong. So I started looking around and found this thread viewtopic.php?f=69&t=99324&p=246454&hilit=Net+worth#p246454 which instructed me to put in the equity value.
I will play with it tomorrow and post my results.
Thanks again.

Don't use the opening balance but the payout transaction when creating the loan. Use the house account for it. That will create the transaction with the loan on one side (liability) and the house on the other side (asset).

Since I am not too far into this, it was not a big deal to try a lot of scenarios until I eventually got it right.
Which I did.
For my situation, there were a lot of variables that made it difficult to get it right the 1st time.
For a new loan and starting with the 1st payment, it's a cinch.
But starting about 2 years through an 18 month loan where the value is far more than the loan amount, presented some challenges.
Which you gentlemen were kind enough to try and pound into my skull.

Thanks again

Well, I am still struggling with this so I reopened the topic. The New Year is having me look at this again.
It seems that I can get either the Net Worth accurate or the Budget, but not both.
This is what I have so far and maybe you can tell me where my mistakes are.

Asset = House, value = $82,500 which represents the amount of the mortgage. (this is based upon another thread, not the actual value.)
Mortgage = $82,500 with 2 payments made so far,
The payments are $1,446 per month and I have tried changing the split a lot of ways to get them right.

What seems to be correct for the budget is to have the payment split like this (numbers are approximate).
Payment = $1,446.00
Mortgage Interest = $135.00
Mortgage principle = $1,311.00

Yet a net worth report still shows the Asset of $82,500 and the loan of $82,500
The Budget report is correct and shows Bills & Monthly Payments: Mortgage = $1,446.00
==========================================
If I change the allocations of the payment to try and get the Net Worth accurate, the Budget becomes incorrect.

So, how should the monthly payment be distributed ?

I am thinking that it is not possible to get both numbers to be correct.

Sorry to tell you, but you won't get that going.
In order to see the mortgage decrease you need to transfer the mortgage split to the loan account instead of a separate expense category (was it Mortgage Principal in your example). The interest split should go to the resp. expense category (Mortgage interest). The downside of this is, that you cannot budget transfers between accounts and they don't count as expenses even though you don't actually see the money in your pocket. Since your loan goes down and the value of the asset hopefully remains, the net-worth will grow over time. I agree, that you don't see the cash-flow easily using this setup, but it helped me a lot to see my net-worth changing.