Hi,
I have a question that I'm hoping this group can help answer. It's regarding the use of the Interest Notice and what would happen in the case of Paid Down Interest.
- should we use standard interest notice to also represent paid down interest event, in which case should we have a field that identifies it as such.
- For normal interest should we specify accrual periods for only the unpaid part of the principal, or should it be for the total principal.
- If we specify total principal I presume we would have to state that a certain amount has already been paid otherwise we double count. We don't currently have a field to represent this.
The following example illustrates by showing what happens on 3 different days. The final day shows interest being represented in 2 different ways:
1 Jan 2009 (Drawdown)
=================
New Contract:
Contract Amount = $1,000,000
Contract Start = 2 Jan 2009
Contract End = 1 March 2009
Base Rate = 5%
1 Feb 2009 (Principal Payment with Paid Down Interest)
=========================================
Principal Repayment : $200,000
Paid Down Interest : $200,000 @ 5% for 30 days = $821.92
1 March 2009 (Principal and Interest Payment)
==================================
Principal Repayment : $800,000
Interest:
[ If we assume we only specify principal that is unpaid ]
Accrual Periods
2 Jan 2009 - 1 Mar 2009 : 800,000 @ 5% for 30 days = $6356.16
[ If we assume we specify paid and unpaid principal, and also state interest already paid ]
Accrual Periods
2 Jan 2009 - 1 Feb 2009 : 1,00,000 @ 5% for 30 days = $4109.59
1 Feb 2009 - 1 Mar 2009 : 800,000 @ 5% for 30 days = $3068.49
Total Interest: $7178.08
Interest Already Paid : $821.92
Regards.
Mazhar.