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P/I Constant and Interest Calculation

Navigation:  Loans > Loan Screens > Account Information Screen Group > Account Detail Screen > Account tab > Payment and Classification field group > Payment Method 0: Conventional Loans >

P/I Constant and Interest Calculation

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Conventional (payment method 0) loans charge interest on a monthly basis based on the following factors:

 

Interest Rate (LNRATE)

Principal Balance (LNPBAL) as of the last payment date (or Date Opened if no payments have been made)

Days difference from last Due Date to current Due Date

Interest Calculation Method (LNIBAS)

 

Conventional loans are originated with an unvarying P/I Constant due each month, which includes the principal and interest amount. The interest amount of the P/I Constant (also known as P/I payment or contractual payment) is calculated slightly differently based on the Interest Calculation Method. If the Interest Calculation Method is set to "1 – 365/365", interest is calculated each month based on the following calculation:

 

Principal Balance amount as of last payment x Interest Rate / 365 x days difference from last Due Date to current Due Date = Amount of payment that goes to interest

 

The rest of the P/I Constant, after paying interest, goes to principal.

 

This calculation will be slightly different if something other than "1 – 365/365” is selected in the Interest Calculation Method field. See Interest Calculation Methods for more information.

 

Example

 

P/I Constant = $200

Principal Balance as of last payment date = $25,000

Interest Rate = 5.75%

Last Due Date to this Due Date = 31 days

Interest Calculation Method = 1 – 365/365

 

Interest calculation:

25,000 x .0575 ÷ 365 x 31 = $122.09 This is the amount of interest paid from the P/I Constant.

200 – 122.09 = $77.91 This is the amount applied to principal from the P/I Constant.

 

 

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