Sub-Accounts that Moneylender Tracks for Every Loan
On each loan, Moneylender maintains several accounts, each has its own running balance and discreet transactions. Often transactions will be copied to more than one account, a principal disbursement causing a transaction on both the principal account and the interest bearing account, for example. Each account has a specific purpose, and a specific type of money.
Users are not able to create transactions on the accounts directly. Instead you create various settings which are then interpreted by the calculation engine on the loan to produce the actual transactions. Users can still manipulate the balances manually because all engines support Adjustment settings. For example, waiving a late fee will create an adjustment setting that says to add a negative transaction to the fees account to undo the late fee. This adjustment setting doesn’t just add a transaction to the fees account though. It also adds a transaction to the amount due account because the fee no longer needs to be paid; and a third transaction to the ledger account to reduce the overall balance by the amount of the late fee that is being waived; and, if the loan is using compound interest, it will add a fourth transaction to take the fee out of the interest bearing account. Separating the settings from the transactions allows Moneylender to ensure all the balances are working in concert to accurately represent the monies on the loan.
You can use the Ledger Transactions report to review every single transaction in any account on a loan.
Principal – This is the amount of actual principal on the loan. When you add a principal disbursal from the Settings tab or when setting up a loan for the first time, that causes a transaction to be entered onto the principal account to increase the principal balance. When a payment is applied to a loan, the part of the payment that is applied toward principal causes negative transactions that decrease the balance of the principal account.
Interest - This account has transactions for every time interest is charged, and whenever interest is paid back. Moneylender has several interest modules that will determine the correct amount of interest to charge on a loan. When an interest module indicates that interest should be added to a loan, a positive transaction is added to increase the amount of interest on the loan. When a payment is applied to the loan, the amount attributed to interest is recorded as a negative transaction to decrease the interest on the loan. When applying “Regular Payment” payments to a loan, Moneylender will compare the balance of the interest account and the amount of the payment. Either the whole payment goes towards interest because it wasn’t enough to pay the balance to zero, or the balance on the interest account is applied to bring the interest balance to zero and the remaining funds are passed forward to the principal account.
Fees – This account has transactions whenever a late fee or other fee is added to the loan. When a payment is applied to the loan, the fees balance is usually paid down to zero before the remaining funds are then paid toward interest and principal. Late fees and other fees like NSF fees or origination fees are added to the loan through the Fees account – causing positive transactions to increase the balance. Payments that pay fees will trigger negative transactions on the fees account to lower the balance of outstanding fees. Usually the payments will pay the fees balance off completely.
Interest Bearing – this is very often identical to the principal account. If the loan is set for simple interest, then only principal will be considered for the interest bearing account. Unless manually adjusted, this account will have exactly the same set of transactions that the principal account does. If the loan is in compound interest mode, this account will have all the transactions from principal, interest and fees copied to it, and it will represent the total of outstanding balances payable to the lender at any point in time.
Escrow – This account is separate money on the loan that has been earmarked for property taxes, insurance or other purposes that the lender pays on behalf of the borrower. Disbursements from the escrow account will reduce its balance – meaning you paid funds from escrow toward an approved expense like property taxes. If a payment is marked as an Escrow Only payment, it will be credited in its entirety into the escrow account. When a loan has an escrow charge set, the charge amount is added to the amount due on the loan. When payments are received and marked as either Regular or Interest Only, the escrow due is taken from the payment amount and put into the escrow account before any funds are applied to other amounts on the loan.
Ledger – This account is essential how a bank account would look if only the money for this one loan was channeled through the account. Each of the payments are shown essentially as recorded on the Payments tab. The interest, fees and principal transactions are all present. This represents the overall balance on the loan (exclusive of any funds in the escrow account). Throughout Moneylender, wherever you see Overall Balance, it refers to the balance of the loan’s Ledger account for a specific date.
Amount Due – This account should not be though of as actual money. This account represents “how much you want the borrower to pay right now.” When there is a balance of $100, that means $100 is due on the loan and the borrower needs to pay $100 for the loan to be considered current. When the balance is zero, the loan is current. If the balance is negative, the borrower has overpaid what was scheduled to be paid. Moneylender uses this account to keep track of how far ahead or behind the payments are from the borrower in comparison to the scheduled payments on the loan, to determine if a late fee will be charged at the end of each grace period, along with a variety of other tasks, for reporting timeliness and delinquency, and several other mechanisms throughout the system. Positive transactions to the account represent money becoming due, such as scheduled regular payments, fees, late fees, and escrow charges. Adjustments to this account are common when you want to defer a payment, treat a loan as current even though the payments are lower than scheduled, and innumerable other reasons an account might need to appear as current, delinquent or paid ahead.
Escrow Due – this account tracks the amount that is presently due to be deposited into the escrow account. As scheduled payments become due, positive transactions for the amount of the escrow charge are added to this account and copied to the amount due account. When a payment is recorded, the funds will first be put into the escrow account up to the balance of the escrow due account, and then apply toward fees, interest and principal.
Lender Shares accounts – any loan might have multiple lender shares accounts or none at all. These accounts track the discount amount that is the difference between the principal balance on the loan and the purchase price paid by a lender for their share of the loan. When a lender buys a loan for 80% of the principal balance, this account opens with a balance equal to the last 20% of the principal – the discount that the lender received when they bought the note. The ratio of principal to discount is set on the lender record at 20%. As payments arrive, 20% of their principal is applied to this account as discount earned. Discount earned is taxable profit, just like interest and fees. This account can be used in conjunction with any report where you can choose a specific lender. It informs the columns Discount Earned, Opening Discount Unearned, and Remaining Discount Unearned on the Summary of Finances reports. These accounts aren’t directly viewable from the Ledger Transactions report like the other accounts.