Amortized Fee Setup

To set up an amortized fee on a loan, query the loan, then select ViewAmortized Fees menuclick the Loan tab of the ribbon bar and select Amortized Fees in the Setup group.


Click Add Add.

The specific configuration will depend on the type of fee amortization:

Straight Line - Periodic

If a fee is amortized via the straight line method, the amount of the fee to be amortized is divided by the total number of periods, and the periodic amortization transaction will be run for the resulting amount whenever called for by the fee amortization setup.

Examples

  1. A $1,000 fee, amortized monthly over 12 months: The amortization transaction will occur once a month for the amount of $83.33.
  2. A $1,000 fee, amortized daily over 12 months: The amortization transaction will occur daily for the amount of $2.74.

Description Descriptive text to identify this amortized fees and distinguish it from any other amortized fees on the same loan.
Type Set to Straight Line - Periodic.
Start Date The first date on which the fee should amortize
Balance The Amount of the fee to Amortize
Est. Bal. Transcode The Establishing Transaction Code. Only transaction codes which meet the requirements for an Amortized Fee establishing transaction code will be available in this drop down list.
Period The frequency of the straight line amortization
Divisor The total number of times that the fee will amortize straight line. The fee amount will be divided by this value to derive the periodic amount.
Amort. Fee Transcode The periodic amortizing transaction code. Only transaction codes which meet the requirements for an Amortized Fee periodic amortizing transaction code will be available in this drop down list.
Periodic Amount The amount that will be amortized during each periodic amortization.

NLS 5.12 and later

Increase Payment Amount
This option is to be used when an amortized fee, such as an insurance premium, requires a separate billing (effectively increasing the payment amount). When selected, two separate billings will be generated; one for principal + interest and another for premium + interest.
The establishing transaction code (e.g. Transaction Code 190) must be configured to increase the principal.
Straight Line - Custom

The custom method of fee amortization is the simplest (and also the least used) method by which to amortize a fee.

You simply specify the exact dates on which portions of the fee are scheduled to be amortized then you specify the exact amount to be amortized on each of those dates.


Description Descriptive text to identify this amortized fees and distinguish it from any other amortized fees on the same loan.
Type Select Straight Line - Custom.
Balance The Amount of the fee to Amortize
Est. Bal. Transcode

The Establishing Transaction Code. Only transaction codes which meet the requirements for an Amortized Fee establishing transaction code will be available in this drop down list.

Amort. Fee Transcode The periodic amortizing transaction code. Only transaction codes which meet the requirements for an Amortized Fee periodic amortizing transaction code will be available in this drop down list.
Start Date The date of the first amortization and calculation.

To schedule a date and amount to amortize a portion of the fee, click AddAdd on the lower section of the dialog.


Period Number Enter an identifying number for the period that you are defining.
Period Date Enter a date on which you want a portion of the fee to be amortized.
Period Amount Enter the amount that represents the portion of the fee that you want amortized.
Effective Interest Method

Effective Interest Method is used to obtain the amortized amount based on the given parameters from actual interest paid.

The equation for this amortization method is:

Amortized Amount = Actual Interest PaidInterest Calculated from Amortized Schedule

Where Interest Calculated from Amortized Schedule is the amortization schedule of the Principal Amount (Loan Principal Bal + Starting Balance) and Effective Interest Rate.

Description Descriptive text to identify this amortized fees and distinguish it from any other amortized fees on the same loan.
Type Select Effective Interest Method. Premium/Discount setting is only for classification purposes and does not affect the calculation.
Starting Balance The amount of the fee to amortize.
Est. Bal. Transcode The Establishing Transaction Code. Only transaction codes which meet the requirements for an Amortized Fee establishing transaction code will be available in this drop down list.
Effective Interest Rate The interest rate.
Amort. Fee Transcode The periodic amortizing transaction code. Only transaction codes which meet the requirements for an Amortized Fee periodic amortizing transaction code will be available in this drop down list.
Use Loan Information Deselect and enter the desired values to amortize on values different from the loan.
Effective Interest Method - Daily Accrual

If a fee is amortized via the Effective Interest Method - Daily Accrual, the amortization of the fee will track with the interest accruals on the loan. For example: in an amortized loan, more interest tends to be realized up front while the principal balance is higher. A fee amortized by the effective interest method would amortize in proportion to this accrual of interest.

The equations and procedures for this amortization method are as follows:

Given that

x = total interest accrued life to date on the loan

y = total interest projected to accrue over the entire life of the loan based on history so far and projecting the payment schedule forward from this point to the maturity date

then

x/y = the ratio of the fee which should be amortized up to this point in time.

if

f = the amount of the fee to be amortized

then

f* (x/y) = the dollar amount of the fee that should be amortized up to this point in time.

if

a = the amount of the fee that has been amortized so far

then

(f * (x/y)) -a = the amount of the fee to amortize today.

The amortization period controls the frequency with which these calculations are run. Modifications, interest rate changes, advances, or principal reductions on a loan can cause drastic shifts to the factor “y” in the equations above and as a result when these calculations are run, the amount of the fee to amortize can jump greatly, or can even be a negative value. There is a checkbox to allow negative amortization, and if this is selected, the fee amortization will correct back to where it “should be” given the new and current conditions of the loan. If this checkbox is not selected, then the amount amortized will be zero each time until such time as the calculations yield a positive amount to amortize. Because the projection of interest “y” is always through the maturity date of the loan, by that date y will always equal x, and consequently the fee will always amortize in full on the first amortization date on or after the date of maturity.

Description Descriptive text to identify this amortized fees and distinguish it from any other amortized fees on the same loan.
Type Select Effective Interest Method - Daily Accrual.
Starting Balance The Amount of the fee to Amortize
Est. Bal. Transcode The Establishing Transaction Code. Only transaction codes which meet the requirements for an Amortized Fee establishing transaction code will be available in this drop down list.
Amort. Fee Transcode The periodic amortizing transaction code. Only transaction codes which meet the requirements for an Amortized Fee periodic amortizing transaction code will be available in this drop down list.
Amort Effective Date The date from which to start amortizing. Interest accrued prior to this date is not counted in either “x” or “y.”
Interest Offset This field is calculated automatically, and is the amount to be deducted from “x” and “y” based on the Amort Effective Date. It represents the interest that accrued prior to that date.
Expected Interest Factor “y” in the above equations
Period The period used to define the frequency of the amortization
Number of Periods Used with period to define the frequency of the amortization.

Example

If period is set to days and number of periods is set to 5, the calculations above would be run every five days.
Start Date The date of the first amortization and calculation.
Allow Negative Entries If selected and the amount of the fee to amortize comes to a negative value, then that amount will be rolled back (un-amortized). If not selected and the amount of the fee to amortize comes to a negative value, then zero will be amortized.
Principal/Original Balance Pro-rata Method

If a fee is amortized via the principal/original balance pro-rata method, the amortization of the fee will track with the rate at which the principal balance on the loan is repaid. For example, when 20% of the original principal of the loan has been repaid, the fee will be 20% amortized.

The equations and procedures for this amortization method are as follows:

Given that

x = the total principal paid on the loan

y = the total principal advanced on the loan

then

x/y = the ratio of the fee which should be amortized up to this point in time.

if

f = the amount of the fee to be amortized

then

f * (x/y) = the dollar amount of the fee that should be amortized up to this point in time.

if

a = the amount of the fee that has been amortized so far

then

(f * (x/y)) - a = the amount of the fee to amortize today.

As long as no principal payments have been made since the last time the calculations were run, the amount of the fee to amortize will always come out to zero. Therefore, if it is your intention that a portion of the fee should amortize as soon as a principal payment is made, set the period for this setup to daily. A portion of the fee will always amortize during the nightly accrual process of any day on which there was a payment to principal.

Description Descriptive text to identify this amortized fees and distinguish it from any other amortized fees on the same loan.
Type Select Principal/Original Balance Prorata Method.
Starting Balance The Amount of the fee to Amortize
Est. Bal. Transcode The Establishing Transaction Code. Only transaction codes which meet the requirements for an Amortized Fee establishing transaction code will be available in this drop down list.
Principal Offset The amount to be deducted from the principal paid “x” and principal advanced “y” of the loan. Amortization beginning on the start date will be based on this adjusted principal.
Amort. Fee Transcode The periodic amortizing transaction code. Only transaction codes which meet the requirements for an Amortized Fee periodic amortizing transaction code will be available in this drop down list.
Period The period used to define the frequency of the amortization
Number of Periods Used with period to define the frequency of the amortization.

Example

If period is set to days and number of periods is set to 5, the calculations above would be run every five days.
Start Date The date of the first amortization and calculation.
Allow Negative Entries If selected and the amount of the fee to amortize comes to a negative value, then that amount will be rolled back (un-amortized). If not selected and the amount of the fee to amortize comes to a negative value, then zero will be amortized.

If the loan’s Interest Type is set to Fixed Amortization, the principal paid for the above calculations is the amount of principal that should have been paid according to the amortization schedule. This means that the fee will amortize on the next opportunity to do so after a principal payment is due, even if that principal payment has not been made.

Rule of 78

This method will amortized the fee following the rule of 78.

If the term type is daily, the pro-rata share of the periodic rule of 78 amortization for that month is amortized.

To Treat Long Period as Standard Period, select this option.5.20+

Example

$100 fee on a 12/12 loan will be (12/78) * 100 = $15.38461. Then $15.38461/31 Days in Month = $0.496277.
Average of Rule of 78 and Straight Line

This method will amortize using the rule of 78 then do a secondary amortization using the straight line method and take the average of the two amortizations.

To Treat Long Period as Standard Period, select this option.5.20+

Example

Using rule of 78, $100 fee on 12/12 loan will be (12/78) * 100 = $15.38461.
Using straight line, $100/12 = $6.33333 so average of rule of 78 and straight line = (15.38461 + 8.33333)/2 = $11.858971 for the first month if there are 31 days in the month.

Cancellation Tab

Available in NLS 4.9.2 and later.

Options and rules to be applied when an amortized fee is canceled is configured in this tab.
Actuarial/Pro-RataRule of 78Conditional Pro-Rata
Type

Calculation used to determine the amortization adjustment and cancellation amounts.

Actuarial

Entire amortization amount is used as the cancellation amount.

NLS 5.20 and later

Straight Line Periodic Remainder of the amortized fee is canceled while the pro-rata rate of the amortization fee is reversed. Rebate rule is applicable.
Straight Line Custom The unamortized balance is canceled.
Effective Interest Method The unamortized balance is canceled.
Effective Interest Method - Daily Accrual The ratio of earned interest to anticipated life interest is canceled. Rebate rule is applicable.
Principal/Original Balance ProRata Method The unamortized balance is canceled.
Rule of 78 Remainder of the amortized fee is canceled. Rebate rule is applicable.
Average of Rule of 78 and Straight Line The ratio of earned interest to anticipated life interest is canceled. Rebate rule is applicable.
Pro-Rata Remainder of the amortized fee is canceled while the pro-rata rate of the amortization fee is reversed.
Rule of 78’s Remainder of the amortization fee is reversed.
Conditional Pro-Rata5.16+ Same as Pro-Rata with the ability to define the number of days from origination.
Cancellation Transcode Transaction code to use with the cancellation.
Minimum Cancellation Sets the minimum amount required for the cancellation amount. Cancellation amount is 0 if it is less than the minimum cancellation value. Maximum value is 999.00.
Minimum Amortized Fee5.18+

The minimum amount that may be assessed on the loan.

Example

If the closing fee of a loan is $30 and the loan is paid off before maturity, setting this to $25 will still asses $25 fee on the loan.
Cancel on Early Payoff When selected, the entire amortized fee is removed when the loan is paid off early.
Refund Setup Expire Date5.18+
No refund of amortized fees is issued on or after the specified date.

Example

If the closing fee can only be refunded within the first 90 days and the lender is allowed to keep the full amount after 90 days, advance this date 90 days from the origination date.
Complete Refund Expire Date5.20+
A full refund of amortized fees is issued on or before the specified date.
Rebate Rule Rules for rebate determination.
Through End of PeriodPayment must be made before the end of the period minus the specified Cutoff Days for the rebate to be applied.
ProportionalRebate is proportionally applied.
Nearest Payment DateIf a payment falls within the first half of the month, rebate is applied.
Rebate Factor Percentage5.15+
Only applicable to type Pro-Rata. The percentage of the refund amount (unamortized fee) portion to be included in the total cancellation amount.
Cancellation Computation5.16+ Only applicable to type Conditional Pro-Rata.
Origination Date to Maturity DateDefault. Refund is computed based on the number of days from the origination date to maturity date.
CustomEnter the maximum number of Days from Origination Date.