OK, I'm really confused, and I don't seem to be able to find the answer to my problem. Could somebody review the steps I'm taking to create a mortgage account in KMyMoney (version 4.7.2)? I'm undoubtedly doing something stoopid, but I'm so ignorant, I'm not even sure how to ask intelligent questions.

I'm building my home finance record, starting with all my transactions from 2016 and going forward. I've already entered most of my checking accounts and credit card transactions, but am now trying to set up my mortgage. I'm also trying to be able to quickly estimate my net worth, so I've set up some asset accounts also.


Here are the accounts I've set up:

Asset: "House"
Liability: "Mortgage"
Expense: "Mortgage Interest"


Here are the steps I took:

1. I reset my computers clock to March, 2015 to prevent the KMyMoney's past-date goofiness.
2. Created Asset account “House” and gave it the Zillow estimated value as of Jan 2016.
3. Created the category “Expense: Mortgage Interest”
4. Created account “Mortgage” and started the new account wizard

[Using the Wizard:]
5. I entered the “institution” with the name of my mortgage bank, using the pull-down.
6. Account name was “Mortgage”
7. Account Type was “Loan”
8. Opening Date was Jan 1, 2015 (way in the past to prevent issues later)
9. Entered the Payee (which was the same name as the “institution” previously referenced.)
10. I was NOT able to enter the loan balance as of Jan 1, 2016 (Since I’ll only be adding 2016 payments, but the loan actually started in 2014). I don’t understand why this field was not allowing me to enter data.
11. Entered the due date as Jan 1, 2016, which is the first payment for the year.
12. Entered the actual loan amount (this what I had wanted to put into the “Loan Balance” field in step 10). This was the loan balance as of Jan 1, 2016.
13. Entered the interest rate, the remaining term (332 monthly payments remaining as of Jan 1), and the total payment (principal and interest)
14. Hit “Calculate” and got a pop-up saying the calculations were successful.
15. Skipped the section on additional fees since I pay my taxes directly (not through escrow)
16. Entered “Expense: Mortgage Interest” as the interest category.
17. Entered “Checking” as the Payment Account.
18. Selected “Do not create a payout account” because I already own the asset, and just consider this mortgage a general loan. The value of my asset won’t increase as the loan is paid, but the value of the liability (my mortgage) will be reduced as I pay off the principal.
[Finished the new Loan Wizard]


19. Saved the file and closed KMyMoney.
20. Reset the date to the correct (today’s) date and reopened KMyMoney
21. Reviewed some ledgers
21.1 “Mortgage” has 15 greyed-out transactions, all with today’s date, for the amount of my principal and interest.
21.2 Similarly, the “Checking” ledger has the same transactions shown in the same way.


Now I’m confused about what to do next. I hope somebody much more knowledgeable (and smarter! <grin>) than me can help me here.

1. How do I enter the mortgage payments and the correct splits between principal and interest?
2. Do I have to do anything with the greyed-out transactions, or will they go away when I enter the actual mortgage payments?
3. Did I take the correct steps to enter the basic loan?
4. Is there any on-line tutorial which does this operation in detail?


TIA!

Even if the question does not seem to be intelligent to you, your detailed description is done very well.

I think, setting the opening date of the loan account to Jan 2015 and trying to keep the records for all payments from 2016 onwards is not a good idea. The two dates should match to get things working properly (AFAIR). The amount of the loan should be paid out to your house account. In your case, the value of the house will rise and you should adjust the opening balance of the House account to get this straight (opening balance house = value of house - loan amount). The opening date of the house account does not matter so much, it should be Jan 1st 2016 or prior. Note: in case the loan amount is not payed out, the automatic interest calculation will not work properly.

As part of the loan creation, a so called 'scheduled transaction' (or schedule for short) has also been created in KMyMoney (you can find it on the Schedules tab). This schedule is the reason for the grayed out transactions, as these represent the (meanwhile) overdue payments. You can right click on the grayed out transaction and select 'Enter next transaction' which opens a dialog where you can adjust the details of the payment. Make sure that the post date is correct and the splits for principal and interest show the right values. Adjust them when needed according to your statements. For future payments, KMyMoney should calculate the interest and principal splits automatically given on the numbers provided during creation of the loan.

Once you have entered all past transactions you should see accurate numbers in the networth report.

Not knowing details about your operating system environment, I suggest that you upgrade to 4.8.0 if possible.

Hope that helps. In case you have more questions, please feel free to post them here.

Thanks ipwizard! With your comments and bit more experimenting, I’ve been able to setup a mortgage on a scheduled transaction. For posterity, here is how I did it (along with some explanatory comments)

1. Set the computer’s date to the origination date of the mortgage loan. This is needed because KMyMoney gets really confused if you try to enter a transaction that happened in the past. In my case, I set the computer’s clock to January 1, 2016.

2. Open KMyMoney. I’m not sure if you must have the program closed when the date is reset, but I did all my date changes when KMyMoney was closed to prevent any possible confusion on it’s part.

3. Create an “Income Category” for market gains and losses. This category will be used to show increases and decreases in the market value of certain assets (like my house). It will also be used to as part of my kludge fix to a minor problem with how KMyMoney handles mortgages. I call the category “Capital Gain/(Loss) – Unrealized”, but you can call it anything you like. NOTE: If you do not want KMyMoney to track your net worth, then this step can be omitted. The program will handle all your mortgage costs properly, but any net worth calculation will be overstated by the value of your mortgage.

4. Create an account for your House. Use the “account type” of “Asset” in the wizard. A loan program really likes to have the asset associated with it, even though it causes some real goofiness with the program (see comments on Step #6.29).
4.1. Optional: Set the “initial value” to the purchase price of the house. This will allow you to track your net worth by including the market value of your house within KMyMoney.

5. Create an account that is the source of your mortgage payments. I used my checking account that I had already setup. But as far as I know, this can be any type of account (Cash, savings, etc).

6. Create a Mortgage account using the new account wizard.
6.1. Account → New [opens new account wizard]
6.2. Enter “Institution” name. I used the name of the bank where I got my mortgage.
6.3. Optional: Enter the Account Number. I entered the mortgage number for my bank, but I don’t think this data is used by the program anywhere.
6.4. Optional: Enter the IBAN. This is the international bank account number. I left it blank, with no apparent problem.
6.5. Enter the Account Name. I entered “Mortgage”, but this is just a label and it can be anything you like. It also can be altered later to make it more readable.
6.6. Set “Account Type” to be “Loan”. This will activate the loan setup portion of the wizard starting on the next screen.
6.7. Select Currency. I used US Dollar (USD).
6.8. Enter the opening Date. This will default to the first day of the current year (as read by the computer’s clock). I entered 1/1/2016 since I was tracking the entire year’s mortgage payments.
6.9. Leave “Opening Balance” blank. I had thought I would have to enter the actual opening balance (i.e.: the amount of my mortgage), but this field seems to have no effect. As far as I know, any value you put here is ignored. Later you will enter the loan amount, so I guess the later value overrides this field.
6.10. Select “I am borrowing money”.
6.11. Select the payee of the loan. This is who you make the monthly mortgage payment to. In my case, I entered the exact same name of the bank that I entered in Step #6.2.
6.12. Select “No” for previous payments. I lied to KMyMoney and said that my loan started fresh on January 1, 2016, even though it actually dates to 2013.
6.13. Record “All payments”. Unfortunately, I never found any detailed documentation about these options, so I never experimented with “start with this year’s payments”. It might have simplified things.
6.14. Leave “Balance before start of recording” blank. It won’t let you enter anything here anyway, so just ignore it.
6.15. Enter “Monthly” payment frequency.
6.16. Enter “Monthly” interest compounding. This is typical of mortgages, but other options are available if your mortgage is different.
6.17. Enter the first date of payment. This will default to the computer’s current date. In my case, the first payment was actually the following Monday. Adjust as necessary.
6.18. Enter “Fixed” interest. I did not test the other options.
6.19. Skip the last 2 options. They do not allow you to change them, so ignore them.
6.20. Select “When payment is received” for interest calculation. I believe this is the normal method for mortgages, so pay on time!
6.21. Enter the Loan Amount. I entered the actual loan balance as of January 1, 2016, which was less than the original loan amount since I’ve been paying it down for several years. I got the loan value from my year-end mortgage statement. NOTE: You have some leeway here. Don’t fill in EVERY field, since KMyMoney wants to calculate some of these fields. Basically, the program will calculate your payment, principal, and interest based on the few pieces of information you provide. You just need to enter enough info to allow the calculation to proceed.
6.22. Enter the interest rate in percent. Mine was 3.5% so I entered “3.5”
6.23. Enter the term length in months. A 30-year mortgage has 360 payments. In my case, since I had already made a bunch of payments, I entered 332 , which was the remaining number of payments to be made as of January 1, 2016.
6.24. Click “Calculate”. A pop-up window will appear telling you the monthly payment.
6.25. Add any “Additional Fees”. I left this blank, but I believe it could be mortgage insurance, escrow payments for property taxes, etc.
6.26. Enter the “Interest Category”. This is where the interest portion of the mortgage payment will be shown. I had previously setup an expense category for mortgage interest.
6.27. Enter the “Payment Account”. This is where the funds will come from that pay the mortgage. It is the account you setup in step #5.
6.28. Skip “First Payment Due” field. I was unable to change this, so I ignored it.
6.29. Select the “Asset Account” that you created in step #4. NOTE: This is a really goofy feature in KMyMoney. The program will inflate the value of this asset by the amount of the mortgage, which makes absolutely zero accounting sense to my engineer’s mind. For example, if you had set the initial value of your house to $250K, and then got a $200K mortgage, KMyMoney says that your house is worth $450K! Don’t worry however, I figured out a simple kludge that will fix this. See steps #15-18. BEWARE: if you select “Do not create payout transaction”, the principal and interest calculations will be wrong. I don’t know why, but almost all the payments will be split to paying off the principle with almost nothing going to interest.
6.30. Skip the “Loan Account”. Once again, you can’t change it so ignore it.
6.31. Set the “Date of Payment”. This should be your first payment on the loan. In my case, it was slightly after the loan origination date. I made my first payment of 2016 on January 4 (the first Monday of the month).
6.32. Click “Finish” to exit the wizard.

7. Save data and exit KMyMoney. Woo-Hoo! Your accounts have been created properly!

8. Reset the computer’s date to the current date. We’re (mostly) done lying to KMyMoney, so put in the actual current date so your computer knows the correct time & date.

9. Restart KMyMoney. Before you go on, please notice a few things. If you look at the ledger for the “Checking” account, you should see a whole bunch of greyed-out transactions, all with the current date. These are “scheduled transactions” for your monthly mortgage payment that have not yet been entered. You should also see a “Mortgage” account under “Liabilities” that has a negative value equal to your mortgage loan amount.

10. Select “Scheduled Transactions”. You should see an entry under “Loans”.

11. Right Click the “Loan Payment”. The “Scheduled Transactions Options” menu will open.

12. Select “Enter Next Transaction” on the pop-up menu. This will allow you to execute one of the oldest greyed-out transactions, putting it on the ledger at the correct date. A new pop-up will appear.

13. Enter the Scheduled Transaction
13.1. Update the “Date” if necessary. I often had to change the date slightly to be the first weekday of the month.
13.2. Check the “Split”. The split should be correct, but you can verify that the principal and interest are correct. NOTE: If you did not select an “Asset Account” in step 6.29, the principal and interest split will be wildly wrong.

14. Repeat steps 10 – 13 until all the greyed-out transactions have been converted to actual transactions.

15. Go to Ledgers and select the House Asset. This is the asset you created in step #4. You will see that there is a transaction from “Mortgage” which adds the mortgage value to your house value. This weird transaction may make some sense to somebody, but it does not make sense to me. Your house value does not increase when you add a mortgage (it might actually decrease slightly since you may have to sell it quickly to convert the house to cash if you have to suddenly pay of the mortgage). Luckily, I’ve developed a simple three-step kludge to fix this problem. The following steps are that kludge. NOTE: If you do not want KMyMoney to track your net worth, then the following steps can be omitted. The program will handle all your mortgage costs properly, but any net worth calculation will be overstated by the value of your mortgage.

16. Delete the “Mortgage” transaction from the “House” ledger. This solves the value problem within the “House” ledger, but does cause one more problem we will fix in the next two steps.

17. Select the “Mortgage” ledger. You will see that initial value of the mortgage is now zero. This means that every time you make a principal payment, you reduce the debt and create a surplus… not a correct situation. The next step fixes this.

18. Add a new transaction to increase the mortgage by the original mortgage value. Use the “Capital Gain/(Loss) – Unrealized” category you created in step #3 to show the source of the funds. This means the mortgage should now start with the original mortgage value and decline each time you make a principal payment.

You now have the mortgage entered, and the program will create a scheduled transaction every month to pay off the mortgage. The split between principal and interest will be accurate also.

If you have any questions/additions/deletions/corrections, please reply to this posting. You can also contact me directly. My eMail address is "casey" and my domain is called NerdWorl;d.org.

6.29. Select the “Asset Account” that you created in step #4. NOTE: This is a really goofy feature in KMyMoney. The program will inflate the value of this asset by the amount of the mortgage, which makes absolutely zero accounting sense to my engineer’s mind. For example, if you had set the initial value of your house to $250K, and then got a $200K mortgage, KMyMoney says that your house is worth $450K! Don’t worry however, I figured out a simple kludge that will fix this. See steps #15-18. BEWARE: if you select “Do not create payout transaction”, the principal and interest calculations will be wrong. I don’t know why, but almost all the payments will be split to paying off the principle with almost nothing going to interest.

Thanks for the clarification - I realize its now a few yrs later and I'm now using 5.06, but what I found was a bit different - everytime I tried to select the Asset account for the house, it failed to split the transaction into principle and interest. so after several failed attempts tweaking every other option, I finally let it go and ignored the asset account. The result was a new properly setup liability account for the mortgage which begins with the mortgage principle and then the split assigns the proper principle to decrease this liability for each monthly payment. I actually had a re-cast mortgage after making a large principle payment so I basically started this mortgage fresh at the beginning of the new payment period. Its a bit confusing but the mortgage payout went to my old asset account zeroing it out by using that as the new mortgage starting point. so I just setup a new asset to track the actual house value which I get from realtor.com or zillow.com

I use KMM 5.1.3. This workaround process has worked for me for mortgages, credit cards and lines of credit. I like to have the net worth stated. But I found another oddity that results. The "Income" category set up to fudge the mortgage amount displays in the I/E Reports for the month used as a, usually large, negative number. It only happens in the month you set up the loan but It throws off the monthly I/E totals as a result. I'm still trying to find an adjusting entry or way to offset this. The second entry for this fudge exists as a Liability Account (the Mortgage), which does not display in the I/E reporting. You need to remember this when you interpret the I/E Reports.

I also use this work around for CC and LOC are "assets" with the specified credit limit as the value (It's not a real asset but it does have value). I fudge the payment calculator by only inserting the loan amount and the monthly payment and let the software calculate the term. the P/I split is close enough and I use an adjusting entry periodically to line up the balances.

Improvements to the loan functions of KMM would be useful.