Mortgage refinances are a common technique leveraged by borrowers today, especially with interest rates a historic low. As such, it becomes increasingly necessary to be able to reflect such transactions taking place in a client’s plan.
How do you show a Re-finance in eMoney?2
Refinances in our software can be modeled in 2 easy steps:
- Pay off the existing mortgage
- Create a new mortgage w/ the new interest rate
Sounds easy right? Let’s take a look at it in action:
Our clients Mark & Rhea have a mortgage on their home for $500,000 with an interest rate of 4.5%. After speaking with a mortgage broker, they feel comfortable that they will be able to refinance to a lower interest rate of 4.0% next year.
Step One: Pay off the existing mortgage
First, let’s navigate to their mortgage in Advanced Facts:
Now that we’ve opened the mortgage, let’s navigate to the Extra Payments tab located on the top:
Once inside the Extra Payments tab you will notice two columns – Per Payment Amount and One-Time Amount. In order to pay off the balance of the mortgage, we will need to enter a value greater than the remaining balance of the mortgage in either one of these columns
Note: Entering the balance of the mortgage in the Per Payment Amount field will pay the mortgage off in the beginning of the year, where the One-Time Amount field will pay it off at the end of the year.
Tip: If you don’t know what the balance of a mortgage is going to be in a future year – check the Worksheets & Schedules – Amortization report.
Step Two: Create a new mortgage
Navigate to Buy/Sell Transactions in Advanced Facts:
Once you create your Buy/Sell Transaction, select an appropriate name and indicate the year in which the refinance is to take place:
Next, select Mortgage from the Add Asset to Buy / Loan drop-down located on the right of the screen and click Add Asset:
Finally, fill out the terms of the mortgage from the point of the refinance on, making sure that all of your dates reference the year in which the refinance takes place:
– John Costello, Financial Planning Analyst