Many churches will have a mortgage payment on properties they own. Being able to accurately track the payments on your mortgage is important for budgeting, but, because your mortgage will be represented as a liability, which is not an account type that can be budgeted, this can present a challenge. This article describes a method your church can use to track the full mortgage payment on your budget, while still accurately reducing the liability of your loan as you pay it off.
In order to get started, you will need to make an equity account that shows the current equity in your property. For the sake of demonstration in this article, we will say that we have a piece of property that is worth 100,000 dollars, and our equity in it is 20,000 dollars. We have 80,000 dollars left on our liability account which represents the balance of our mortgage loan. We have a loan payment due for 1,000 dollars, and the split between principal and interest/insurance/taxes is 400 dollars towards principal, and 600 dollars towards interest/insurance/taxes.
To process this loan payment under this method, two transactions are needed:
Transaction 1:
In the first transaction, we are going to put the entire payment of the loan against several expense accounts. This will be the payment we send to our loan servicer to pay for the loan. The transaction will look like this:
Transaction 2:
For the second transaction, we are going to make a journal entry to reduce our liability for our loan, and adjust the equity we have in our property. This represents a decrease in how much we have left to pay on our loan, and an increase of how much of our property we own. We will be adjusting each of these accounts by the amount of principal we paid on this loan payment.
What makes it possible to budget our mortgage payment is what happened in Transaction 1. Because we put the full loan payment to our loan servicer against expense accounts, and expense accounts can be budgeted, we can apply budgets to each of the expense accounts we used. This means that these accounts, along with their budgets, along with their budgets will appear on reports like the Treasurers Reports and the Income Statement.