Subject: Loans – Dealing with changing terms
Programs: TOTAL Planning Suite
1) Determine Loan Balance when the interest rate or monthly payment will change.
Run reports and view the loans reports (Easy Money reports K2 and K3, Golden Years reports B18 and B18b. Write down the “balance” of the loan for the year the change will occur.
In this example, let’s say the interest rate and payment on the loan will change when the client is 55. Looking at the Loans report, we can see the balance of the loan at age 55 is 192,828.
2) Payoff Loan.
Select the current liability and enter the “Balloon Payoff Age”. Enter Ind. 1’s age the year before the loan will change – the program will make the balloon payment at the end of the year.
3) Start New Loan.
Enter a new loan in the Liabilities section. Set the “Date Opened” to the year the terms of the loan change. Enter the “Original Amount” as the number you wrote down in Step 1.
*Note: Do not select a "Residence Asset" for the new loan. Leave "Residence Asset" field blank, and choose the type as "Residence Mortgage".
In this example, it is year 2008 and the terms will change in 2010 when Ind. 1 is 55. Enter the Date Opened ad 1/1/2010. Enter the “Original Amount” of 192,828.
4) Payoff Expense Offset
The Balloon Payoff on the existing loan balance will be included as an expense to the client. When we are just trying to change the terms of the loan, we need to offset this expense with an income item.
Go to the Income section and select the Other Income/Expense tab. Add a new item for “Balloon payoff offset”. In the age change table, enter the age the balloon payoff will occur and the dollar amount written down on step one. Make sure it is set as 0% taxable. Enter Ind. 1's age the next year with 0 values.
In this expense, enter a new income item for age 54 of $192,828. Enter age 55 in the next row with the values of 0 to stop the income.
