Entering Debt in the Projections

When entering annual spending in the After-Tax Spending column, do not include debt annual payments as those are already factored in automatically based on the debt you have entered on the Debts page (as shown below).

You can access the Debts page from the Scenario Setup section.

Add a new debt to the table by clicking Add Debt.  Complete the data entry with specifications such as the balance, interest rate, monthly payment amounts, whether the debt is joint, and more as indicated by the column names shown below. 

In Snap, the interest rate on all debts is nominal and compounded monthly.  For short-term loans, you may need to convert your interest rate for more accurate results. For example, fixed-rate mortgages in Canada are compounded semi-annually (twice a year), so if you take that interest rate and enter it into Snap without conversion, the results will be inaccurate: the effective rate will be slightly higher and the amortization period will be longer than it should be.

If you have a nominal rate with a different compounding period, you should convert it to an effective rate, and then convert the effective rate to a nominal rate compounded monthly. For example, if a nominal semi-annual mortgage rate is 5.00%, the rate in Snap should be 4.95%. You can use a financial calculator or an online calculator such as Wolfram Alpha.

However, according to FP Canada's Projection Assumption Guidelines, "it is also sensible to use a long-term borrowing rate assumption when projecting the impact of debt on a client’s financial position over the longer term".  Instead of entering the loan's current interest rate, use a long-term borrowing rate.  Click here for details on how to use these projection assumption guidelines in your scenario

On the Planning page, the annual debt payments are displayed under the Debts column. For jointly owned debts, each spouse is assigned half of the annual payment. The Amount Owing is the amount owing at the end of the year.

When you enter a debt, the annual debt payments are automatically subtracted from the client's cash flow.

Here is a simple example of a debt of $41,000 which is paid off within the first few years of the projections.

In the first year of the projections, you can see that the $900 monthly payments equated to $10,800 paid over the year. At the end of the first year, the Amount Owing on this mortgage is $31,038. After paying the $10,800 in debt payments, $22,701 in taxes, and $4,056 in CPP/EI deductions, John is left with $62,443 for his After-Tax Spending from his $100,000 Employment Income.

If there is not enough income to satisfy the annual debt payments, Snap will withdraw the required amount automatically from the capital assets in the specific order to cover the debt liability.  Here is more information on the order of withdrawals.
If there are insufficient withdrawals possible from the capital assets to meet the debt obligation, Snap will withdraw the maximum from capital assets, and will then take the remaining amount owing and show it as a shortfall in the Surplus/Shortfall and Cash columns (see below).

Note: Snap will not automatically sell real assets (ex. House) to pay for the debt. Therefore, if a client is in this situation, consider running a scenario where they sell some of their real assets to eliminate the debt. For example, they can downsize into a smaller home. Here are more details on how to sell a Real Asset in a projection.

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