Debt

A debt is a loan that is not tied to a property. Mortgages live on the property (property). FinZot pays each loan’s interest and required payment at step 2 of every year, outside the spending budget, so a loan is never skipped to protect spending (how a year works).

FinZot runs every loan on a monthly schedule. Interest accrues each month on the balance that month opens with. That month’s payment covers the interest first. A year in the plan is those twelve months added up. A loan’s final year pays only the months the loan is outstanding.

A balance still outstanding when the plan ends counts against your ending net worth. A plan that ends owing more than it owns is reported as balance-sheet insolvent, not as a success (projections & monte carlo).

Existing and future loans

A loan you hold today is described by its current state. A Future Debt is one you plan to take on later, described by its Loan Start Date and its terms, with amounts in today’s dollars inflated to the year it starts. A loan that starts mid-year is prorated to the months it exists.

Amortized loans

An Amortized Loan has fixed monthly principal and interest payments, such as an auto, student, or personal loan. For an existing loan you enter the Remaining Balance, Interest Rate, and Monthly Payment, and FinZot solves the remaining term. For a future loan you enter the Loan Amount, rate, and Term. FinZot derives the payment with the standard amortization formula at the monthly rate. It is the same payment a lender quotes. The payment is principal and interest only.

Interest-only loans

An Interest-Only Loan pays interest and no scheduled principal. There are two kinds.

• Revolving line. A credit card or HELOC. The balance persists until you pay it down through the Extra Cash Allocation Order.
• Balloon payoff. A margin loan, policy loan, or family loan whose full balance comes due on a Balloon Maturity Date, or after a Balloon Term in years for a future loan. FinZot pays the balance that year from cash, selling if it must.

You can force a minimum annual payment as a percent of the balance. FinZot charges a twelfth of that percent each month. Anything above that month’s interest pays down principal.

Paying debt down faster

Extra principal payments are a Pay Down Debt entry in the Extra Cash Allocation Order. Surplus reaches the entry in list order, after the entries above it, and pays down the loan you name. Size it as a fixed amount, a percent of free cash, a percent of the loan’s remaining balance, or a formula. The payment itself never changes. The smaller balance retires the loan sooner instead, which is the cheaper way to use extra cash: you keep paying the old amount, so you pay less interest overall. A loan paid off early stops accruing interest and its required payment ends.

Recast

A Recast a Loan entry in the same list does the opposite with the payment. You pay a lump sum once, in the year you pick, and FinZot reamortizes the balance left over the term the loan has left. The payment drops and the payoff date stays where it was. You pay more interest than paying the loan down would, because the balance is outstanding longer. In exchange you get a lower required payment for the rest of the loan. This is the usual reason to recast a mortgage after a windfall. Not every lender allows a recast, and most charge a fee.

A recast is one event, not a stream. It has a year rather than an effective period, and it takes its lump sum from that year’s extra cash like any other entry, so the lump is capped by the surplus that reaches it. To fund it from savings, schedule a fixed withdrawal in the same year; the proceeds settle into the surplus first. The timeline marks the recast in its year. When the surplus falls short of the lump sum, FinZot recasts on what reached the entry and the timeline says so. A recast in a year with no surplus does nothing, and the timeline says that too.

FinZot applies the new payment from the year after the lump sum. A servicer recasts the same way, once the payment clears.

Only a loan with an amortization schedule can be recast. A revolving line has no schedule to reset. Neither does a balloon. FinZot refuses a recast on either one. It also refuses a recast dated before the plan starts, or before the loan it names originates, since neither year runs.

A mortgage inside an interest-only period recasts on its own at the end of that period. FinZot sets the payment then, from whatever balance has survived to it. A recast entry changes nothing while the interest-only period runs.

How interest is deducted

Each loan’s interest has one tax treatment.

• Not deductible. The default, for personal loans.
• Student loan interest. Deductible above the line up to the annual cap, with the income phase-out, when the loan meets the qualified education loan tests.
• Investment interest. For margin loans and securities-backed lines. Deductible when you itemize, up to net investment income. The excess carries forward, and a starting balance of disallowed interest can be entered (income taxes).