Challenged! How to reset mortgage balance when doing a recast

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sprimost

17 Feb, 2020 09:48 PM

I really am stumped on this one. Financially, it is advantageous to do a "recast" (pay-off of part of mortgage balance without resetting the number of payments to lower monthly payment). Net effect is to reduce principal of initial mortgage spreading payments of the reduced principal and interest over the remaining months of the loan rather than shortening the number of months.

The problem is to get MD to only "transaction" the new payments and the accounting of the new mortgage.I When I modified the terms in the loan for the original mortgage to the new terms, it changed the history on that account. To create a new loan account with the new mortgage amount shows up as double in net worth with both new and original having a balance due (neg amount). Net Worth shows two loans of the same value.

I am thinking that it doesn't matter, since the history of payments (principal and interest) is stored some place else that I am not looking at? Here is the relevant chart of accounts I am working with. Just not create the second loan account and modify the terms on the original mortgage loan account as far as net worth but it does seem to change history?

Assets
01 Equity (amount as down payment) 02 Mortgage (amount of mortgage) total is the price paid for the property.

Liabilities (in the form of loan)
WF Mortgage (current mortgage balance set up as 360 monthly payments that computed amortization schedule)

Net Worth = Assets (amount of two accounts above) - Liabilities (Mortgage) = net equity on property.

My thought is to create another Liability/Loan account for the new/recast amount for the remaining months of payment. That duplicates the loan amount for the existing mortgage. Then create a contra account (asset) to
(1) reduce the original loan amount to zero (2) to reduce the amount in "02 Mortgage" to the reduction of payments to date on the mortgage (2 years) and add the same amount on "01 Equity". I guess this could be done without the contra account.

Is there a simpler way without using a contra account so as not to affect the net worth statement? I really don't like a WITTB (What is Takes To Balance) method of accounting if I don't have to.

Thanks

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