Initial Payment Adjustment

Sometimes, the time between the mortgage payments isn't a perfect, standard interval. This often happens in two key situations:

• Initial payment adjustment: This can happen at the start of the loan. If the period from when the loan is disbursed to the very first repayment date is either longer or shorter than the usual payment cycle (e.g., a month), an adjustment is made to that first payment.
• Changing installment due dates: If you alter the due dates of your payments later on during the loan term, the periods between those future payments will also vary from your standard interval.

For example: A loan was disbursed on 1st and the monthly payment date is 16th every month. This means that the first payment will be lower as it represents a smaller interval than a month. The first payment will then have unique value and from the 2nd payment loan will follow an equal payment structure.

For dynamic mortgages, specific options are available to enable these precise interest calculations. These options are:

• Adjust the total due of the first repayment: Activates the logic for Initial Payment Adjustments. It ensures the first mortgage payment is accurately calculated based on the actual time between loan disbursement and the first due date.
  • Use this option if the first repayment period differs from the rest of the payment periods.
• Adjust the total due of repayments with different intervals: This option applies to situations where instalment due dates are changed during the loan term. When selected, it enables the system to recalculate future payments precisely, adjusting the total due amount to reflect the exact interest accrued over the new, varying payment periods.
  • Use this option when the schedule is edited, since it works only with monthly installments (1-month interval or 1 Fixed Day of Month)

These settings are crucial for maintaining payment accuracy, ensuring that the correct amount of interest is always paid based on the actual duration between payments. If these options are not enabled, the total amount due for your installments will remain unchanged, regardless of how long or short the period between payments is. In such cases, only the interest will be calculated for the actual number of days in that specific interval, which will then adjust the amount of principal paid for that particular installment.

For interest-only loans, these adjustment options are applied by default, and no specific checkbox configuration is required. The system automatically accounts for non-standard periods to ensure accurate interest calculation.

Let's explore how each of these options applies to different product configurations:

Adjust 1st installment total due when the duration is different than the interval

Dynamic mortgage

• Standard interval payments due are equal: The appropriate PMT (CMS/EMI) formula is used, either based on simple interest or compound interest.
  
• Shorter interval: In case of a smaller number of days (less than 1 month) between disbursement and first repayment date, the 1st installment due amount is going to be smaller than the rest of the instalments.
  
  • 1st instalment due = 1PMT + (Interest for full installment - interest for 1 regular interval)
    When (Interest for full installment - interest for 1 regular interval) generates a negative value the amount will be subtracted from the PMT resulting in a lower total dueI compared to the PMT of the other installments.
• Longer interval: In case of a higher period (more than 1 month) between disbursement and first repayment date, the 1st installment due amount is going to be higher than the rest of the instalments.
  
  • 1st instalment due = 1PMT + (interest for full installment - interest for 1 regular interval)
    When (Interest for full installment - interest for 1 regular interval) generates a positive value, the amount will be added to the PMT resulting in a higher total due compared to the PMT of the other installments.

Interest only equal installments

There is no toggle or checkbox to be enabled for interest only loans.

Broken installment total due calculation

• Standard interval
  

• Shorter interval
  

  • Total Due = Interest accrued for that number of days (Principal Balance* daily rate * #days).

• Longer interval
  

  • Total Due = 1 Standard PMT + interest accrued for the additional number of days.

Adjust total due when editing installment due dates

Dynamic mortgages

For dynamic mortgages (capital repayment loans), any changes to your installment dates part-way through the loan term are handled only if the Adjust total due of repayments with different intervals checkbox is selected. This ensures that the system actively recalculates your payments based on the new schedule.

When an installment date changes, the total dues of the affected installments are recalculated as follows:

• If the instalment period is longer than the standard interval: The total amount due for that payment will be calculated as:
  • Total due=1 Standard PMT+(Actual interest for the instalment−Interest for 1 regular interval)
  • In this scenario, if the Actual interest for the instalment is greater than the Interest for 1 regular interval, the difference (a positive value) will be added to your standard payment amount (PMT). This ensures you're paying the additional interest accrued due to the longer period.
• If the installment period is shorter than the standard interval: The total amount due for that payment will be calculated as:
  • Total due=Standard PMT+(Actual interest for the instalment−Interest for 1 regular interval)
  • Here, if the Actual interest for the instalment is less than the Interest for 1 regular interval, the difference (a negative value) will be subtracted from your standard payment amount (PMT). This reduces your payment because less interest has accrued over the shorter period.

This precise calculation ensures that your payments are always accurate, reflecting the exact amount of capital and interest due for the specific period, even when your instalment dates are adjusted.

The following image shows the mechanics of broken interest when installment due dates are edited for dynamic mortgages:

Interest only equal installments

If you need to change an installment date for a mortgage during its term, you'll need to edit the existing payment schedule. This means you'll have to individually update the due date for each specific installment that you want to change.

For interest-only loans, the system is designed to automatically account for any installment date changes that occur part-way through the loan term. When this happens, a special broken interest calculation will be applied to ensure the correct interest is charged for the modified period.

Broken interest typically works in the following way, depending on whether your installment period is longer or shorter than the usual interval:

• If the installment period is longer than the standard interval (e.g., more than a month between payments): The total due for that specific installment will be calculated as:
  • Total due = 1 month Instalment PMT + Interest accrued up to the new due date.
  • This means the borrower will pay their usual monthly installment amount, plus any additional interest that has built up because the payment is being made later than usual.
• If the installment period is shorter than the standard interval (e.g., less than a month between payments): The total due for that specific installment will be calculated as:
  • Total Due = Interest accrued for the number of days in the interval.
  • In this scenario, the borrower will only pay the interest that has accumulated for the actual number of days in that shorter period, as they are making a payment earlier than the full interval.
  • This broken interest calculation ensures that you are always charged the correct amount of interest even when payment dates are adjusted.

The following image shows the mechanics of broken interest when installment due dates are edited for equal interest on loans: