How is a refinance recorded in the books?
A refinance closes out one loan and opens another, and the books need to reflect both sides of that transaction. The settlement statement from closing is your source document for every entry.
Start by retiring the old loan. When the refinance closes, the payoff amount from the settlement statement tells you how much principal remained on the original loan. Debit the old loan liability account to bring it to zero. If there were any prepaid interest or escrow adjustments at payoff, those get recorded separately. Once this is done, the old loan balance should show zero on your books.
Next, record the new loan. Credit a new loan liability account for the full principal amount of the new financing. If you pulled cash out, that money hits your bank account and gets debited there. The math should work: new loan amount minus old payoff minus cash out equals loan costs and escrow funding. Everything should tie back to the settlement statement line by line.
Loan origination fees, discount points, title insurance, and attorney fees tied to obtaining the new financing get capitalized as a separate asset, often called loan costs or debt issuance costs. You then amortize these costs over the term of the new loan. A 30-year loan means spreading the costs over 360 months. Each month, a portion of that capitalized amount gets expensed as amortization. Some closing costs like recording fees and transfer taxes are not capitalized and get expensed when paid. The settlement statement will show you which is which.
Updating your debt schedule is just as important as the journal entries. Record the new principal balance, interest rate, monthly payment amount, maturity date, and any balloon payment. For investors holding multiple properties and loans, keeping the debt schedule current is what lets you plan for upcoming maturities and cash requirements. This is exactly what portfolio and asset management tracking handles, giving you a clear view of debt obligations across your entire portfolio so nothing catches you by surprise.
If you have outside investors or lender reporting requirements, the refinance also needs to flow through to your financial statements accurately. Working with a fractional CFO for real estate who understands how debt restructuring affects your entities means the transaction gets recorded correctly the first time, and your reporting stays clean for everyone who needs to see it.
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