It is easy to manage your housing credit or other credits. However, it is important to understand how the monthly installment of housing loans works, since this is a often misunderstood topic.
When you acquire a property (or other asset), the bank grants you a loan that you use to pay the seller at once – an expense in the value of the property. This loan will be credited to an account (a credit) with a negative balance – corresponding to the amount borrowed – that has certain payment conditions (rate, term, etc.) in the form of a monthly installment.
Thus, a loan must be entered into as a normal account but with a negative balance , as will be explained below. In other words, your total financial assets (the sum of all your bank accounts and credits) may in many cases be a negative value.
Do not be scared to look at the negative balance – this is just the balance of your financial assets. The property you acquired has a certain valuation (usually higher than the loan amount), which in addition to your financial assets will balance your balance.
Many people interpret the payment of the monthly installment as a cost that is imputed to them by the bank – “The bank charges me € 300 every month.” However, the provision is typically composed of two – or three – components:
That is, the 300 € of the installment corresponds to the sum of the amortization (ex. 200 €) with interest (ex. 99 €) and other maintenance expenses, when they exist (ex. 1 € stamp duty).
The amount of amortization and interest varies depending on the amount owed, the rate in force, the term of the debt, and other variables, and at certain times the interest may be much higher than the amortization, or vice versa.
Amortization should not be seen as an expense, but rather as a decrease in the amount owed – that is, whenever it amortizes, it is owed less. This debt repayment is done in the form of a transfer from your order account to your credit account. If, in a payment of € 300, € 200 corresponds to the repayment, your current account will be € 200 less, and your loan with a further € 200. You will have less money in your pocket, but you should also have less than € 200.
In other words, these 200 € never left their financial assets – they did serve to reduce the debt they contracted to buy their property. They should not therefore be seen as an expense.
At , the amortization should be recorded as a transfer from your current account to your credit account, as explained below, so that it does not go into the reports as an expense. Do not worry: you’ll be able to see it in your reports if you want, as we explain later.
Interest is the fee charged by the bank for the loan being issued. Monthly, according to the amount you have in debt, the term, the rate you have chosen (usually, Euribor-xM) added to the spread, among other modalities. That is, whenever you repay your debt, the interest charged to you in the following month decreases (considering that the Euribor has not changed).
If, in a payment of € 300, € 99 corresponds to interest, your current account will be reduced to € 99. The interest should be seen as an expense , which is charged by the bank where you contracted your credit.
The monthly installment may, in addition to interest and amortization, still have other components – for example, Stamp Duty, or, in some cases, insurance diluted in the installment. In this case, you should record each of these components as expenses. If you pay a further 1 € Stamp Duty, you must register it as an expense with the Ministry of Finance.
In summary, let’s say you paid a benefit of € 300:
300 € = 200 + 99 + 1. Thus, the best way to register the installment is to separate your components and register in the each one separately. Your bank should be transparent and allow you to see in your Online Banking the corresponding € 300 you paid.
This is the easy part. You must first create the account for your credit:
Every month, when you pay the benefit, you should consult in your statement the components that make up your benefit. And with these:
After entering the values above, the balance of your current account must have decreased the amount corresponding to the installment, and the balance of your loan should have increased the amount corresponding to the amortization.
If in the extract of your bank only the total value of the installment appears after importing, you must:
In some banks, the current account statement shows the total value of the installment, and in the loan account statement the separate components appear. In this case you should:
Of course, it does not need to go as much detail as we have here proposed. However, if you do, you will have much more accurate reporting and greater flexibility in analyzing the data. For example, by moving the active accounts in the box at the bottom left, you can: