Split and track escrow transactions separately from mortgage payments

I have 2 different loans that I split the payments into 3 categories for each payment. One is to an escrow account which pays my prop taxes and insurance on an annual basis, one payment is to principle for the loan, the last is for the interest. When I classify principle and interest those properly account in my cashflow statement though my income statement does not show them for tax purposes. The escrow payments show up on the income statement, but do not reduce my monthly cashflow. How do I need to categorize them to show up correctly?

@mccartneyproperties Good questions. Mortgage payment splits, escrows, etc. are discussed in detail in the Split & Categorize Mortgage Payments help article. Take a look and reply here with any follow-up questions.

Note that mortgage interest is only shown on the Net Cash Flow report, not the Income Statement. Our Income Statement is focused on operational outcomes, while all financing activities are shown on the NCF instead. Also keep in mind that payments into escrow accounts are generally reported as “Transfers” since they are not actual expenses. Payments from escrows to cover taxes, insurance, etc. can be recorded as actual expenses when they occur, in order to tie out your reporting.

So to properly account for the escrow transfers on tax I should put the payment I make into the category of general escrow transfers, then the actual payments from that escrow account should be categorized as “Property Taxes” or “Rental Dwelling” insurance payments, not transfers?

@mccartneyproperties Just to clarify, the approach discussed above is to categorize payments you make into escrow accounts as “Money Out” under Transfers. If you then receive a disbursement from this account (or your lender pays taxes or insurance directly), that’s a “Money In” transaction under Transfers AND it’s an actual expense (Money Out) transaction under whatever actual expense category was paid. Does that clear things up?

I think so. If I’m reading correctly that would mean there would be 1 (or multiple transactions) for adding to the escrow account. Then 1 transfer back to my account in the balance of the expense. Then 1 payment to taxes/insurance as the expense. It doesn’t look like I can pay the expense directly from the escrow transfers category, so I’d need the two transactions.

@mccartneyproperties You’ve got it figured out!

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This is really frustrating. I imported my mortgage payments from the mortgage company.
I don’t want to manually split every single one, for multiple loans. That would be very time consuming.

Trying to fix via CSV looks like a tough task too, since for each loan, the escrow transfer has changed over time.

A workable fix would be the ability to do a manual multi-edit that lets me add a split to all transactions for the P+I, and a “remainder” split (variable per transaction based on the total of each transaction) that is put into general escrow.

An even simpler fix to implement, would be supporting multi-edit of the Amount field. I would manually change all my mortgage payments to P+I only, and pretend the escrow account does not exist. Then manually fix each tax and insurance payment to be money-out (as it incorrectly imports as money-in).
That periodic fixup would still be a pain, but much better than going through the slow split process for each payment of each loan on multiple properties.

ok. I think I figured out a work-around I can tolerate. Leave all the imported transactions as-is, with full P+I+escrow catagorized as general Mortgage category. Each case where there is a payment from escrow, (which is also imported), create a transaction for the same amount that is “money in” from Mortgage for the amount of the tax or insurance payment. Basically this is using “Mortgage” category as the escrow account.
And to make the above ‘duplicate’ entry easier to create (same date, amount (reversed), notes, but just different category), I edit the tax or insurance expense, and then create a split, and put the full amount in each split, but change category to Mortgage and make the full amount positive there. The two slits total to 0 (which makes sense, as I’m just moving money out of one account into another).

@stevef4571 Thanks for sharing your process with others, it’s much appreciated.

We’re aware of how time-consuming this activity can be when your lender doesn’t provide us with the breakdown of each payment. Some lenders do this, others don’t. The ratio of interest to principal changes every month, and as you noted above, the escrow amounts also fluctuate from time to time. Some investors also make extra principal payments or “round up” to whole dollars on each month’s payment. This makes it very challenging to apply a fixed amortization schedule and do the splits automatically.

That said, we have now implemented some new logic whereby we’ll track changes in the outstanding loan balance over time in order to automatically split off the principal portion of each mortgage payment.

You should see this in action on newly imported mortgage payments from July 1, 2020 going forward. Please let us know if it’s helpful!

That is great!

Maybe some logic could be used to automatically figure out if the lender is providing escrow info, and automate my approach above for those that do not.