Loan Repayment Guide·6 min read
Why Mortgage Isn't a "Recurring Expense"? The Right Way to Track Loan Payments!
Do you record your monthly mortgage as an "expense"? This actually distorts your financial reports!
First, Understand: Loan Payment ≠ Expense
Many people see their monthly mortgage or car loan payment and record it as an "expense." This intuition is wrong!
Each monthly payment consists of two parts:
Principal
Pays back what you owe
After paying this, your debt decreases — it's not really "spending"
Interest
The "rent" for borrowing money
This is your actual expense — money you'll never get back
What Happens If You Record It All as Expense?
Problems with Wrong Recording
- Inflated expenses: Only the interest is real expense, but you're recording the whole payment
- Hidden asset growth: Principal payments reduce your debt, but reports don't show it
- Wrong net worth: You think you're broke, but you're actually building equity
Recurring Expense vs Loan Repayment: When to Use Which?
| Scenario | Use | Why |
|---|---|---|
| Netflix subscription | Recurring Expense | Pure consumption, no principal |
| Rent | Recurring Expense | Pure consumption |
| Mortgage | Loan Repayment | Has principal + interest |
| Car loan | Loan Repayment | Has principal + interest |
| Student loan | Loan Repayment | Has principal + interest |
Three Repayment Methods
- Equal Payment (Amortized): Same payment each month, principal portion increases over time
- Equal Principal: Same principal each month, total payment decreases over time
- Interest Only: Pay only interest during term, principal due at end
Track your loans correctly to truly understand your financial situation!