Variable Interest Accrual Days

Interest Accrual days give the user the flexibility to define any interest payment schedule in the manner they choose. While the majority of loan’s interest payments are accrued by a standard period such as each month or semi-annually, some loans accrue interest by the actual number of accrual days, between one date to another.

Detailed Functionality Description:

Setting up a Loan that accrues interest by accrual days, is done within the Loans Editor, General Tab, by selecting Variability at Interest Frequency.

• The next step would be at the Additional Terms tab, 1 Int. pay Dates. The user should enter for each date: the month, year and at a separate column the day of the month.
• Interest accrual days will automatically be calculated and presented.

Note: Month & year and day of the month are separated, for cases where we just specify irregular payment dates, leaving the day of month empty, and do not accrue interest by accrual days, but by a standard interest frequency such as semi-annual or monthly.

• At Loan Cash Flow Report, the interest payment dates are according to month and year. The interest accrued amount is accumulated according to accrual days.
• The variability interest frequency is available with Scheduled Principal or Schedule Payment method. Interest day Count needs to be ACT /365 or ACT/360. Prepayment interest is not available with variability mode.

Calculation - Scheduled Payment:

If the user chooses the payment method to be a Scheduled Payment, assuming :

Start with the beginning balance. 

On the periods of payments, which are the same for simplicity, fill in the Total Payment Amount. 

On the accrual days, fill in the accrual day between this payment date, and the last one. if it is not a payment date, set it to 0. 

Add another column, accrual days/ 360. in this column, divide the value in the accrual days column, by 360 (the chosen int day count).

To calculate the interest: multiply the previous period’s ending balance, with the interest rate, and the value in the accrual days/360 column.

To calculate the principal - deduct the amount of the interest from the total payment.  

Finish up by calculating this period’s balance = the previous period’s balance, minus the principal paid in this period.

Do the same for the following periods:

Important to Note: to verify this calculation with act/365 accrual count, simply substitute 360 by 365 in all calculations. 

Calculation - Scheduled Principal:

If the user chooses the payment method to be a scheduled payment, assuming:

Start with the beginning Balance.

On the periods of payments, fill in the principal amount.

Calculate the Total payment to be the sum of the principal and interest (interest is not paid in this period).

Calculate the balance by subtracting the paid principal from the previous period ending balance.

On the interest period on the accrual days column, fill in the accrual day between this interest payment date, and the last one. if it is not a payment date, set it to 0n

Add another column, accrual days/ 360. In this column, divide the value in the accrual days column, by 360 (the chosen int day count).

To Calculate the Interest: 

Multiply the previous period’s ending balance, with the interest rate, and the value in the accrual days/360 column 

Do the same for the following periods:

Important to Note: to verify this calculation with act/365 accrual count, simply substitute 360 by 365 in all calculations.

Important Note on Calculations:

The “Interest Day Count” column has 5 options:

-30/360

-ACT/360

-ACT/365

-Days360

-ACT/ACT

Once choosing ACT/ACT, the loans’ interest will be calculated as follows:

If the payment date falls on any day before Feb 29th (even during the leap year), 365 days must be used.

If the payment date falls exactly on Feb 29th and after during a leap year, then 366 must be used.

Once 366 days is used, 366 needs to be applied to the payments for the next 12 months.