Introduction
Interest Adjustment Styles (IAD Styles) define how partial interest is calculated for loans that are funded mid-cycle. Selecting the correct style ensures fair billing for borrowers and lenders while simplifying the transition to loan servicing. This guide outlines the available IAD Styles, their formulas, and real-world examples to help you determine the best method for your lending model.
Navigating to This Section
1. Click the Gear icon in the top-right corner to open Settings.
2. Select Company Settings.
3. Use the left-hand navigation menu to find and expand Loan Setup/Origination.
4. Locate Payment Method & Calculations > IAD.
Tip: Setting a default IAD Style can streamline processes and reduce manual entries.
IAD
Selecting an Interest Adjustment Style
IAD Style | Description | Formula |
365 Days/Year | Uses a standard 365-day year, regardless of leap years. |
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Actual Days in Year | Accounts for leap years (366 days in a leap year). |
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Days in Month | Bases interest on the number of days in the specific month. |
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30/360 Standard | Assumes a fixed 30-day month across all calculations. |
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Best Practice: Choose the IAD Style that aligns with your financial model to maintain consistency and avoid servicing complications.
Example Calculations
Scenario: Loan funded on February 15, 2024, with $10,000 in annual interest.
IAD Style | # of Days | Formula | Result |
365 Days/Year | 13 (Feb 15-28, ignoring leap day) |
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Actual Days in Year | 14 (Feb 15-28, including leap day) |
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Days in Month | 14 (Feb has 29 days) |
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30/360 Standard | 14 (assumes 30-day month) |
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Warning: Updating the IAD Style only applies to unfunded or in-progress loans. Once a loan is funded, adjusting the IAD Style requires unfunding the loan, which removes completed servicing actions.
FAQs
What happens if I choose the wrong IAD Style?
Once a loan is funded, changing the IAD Style requires unfunding the loan, which resets completed servicing actions. Always confirm your selection before funding.
Which IAD Style should I use for short-term loans?
For short-term loans, the Actual Days in Year or Days in Month styles are recommended to ensure accurate borrower charges.
Can I apply different IAD Styles to different loans?
Yes, IAD Styles can be adjusted per loan, but setting a default ensures consistency across your portfolio.
Need Further Assistance?
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