Introduction
The Interest Method selected at origination determines how borrower payments are calculated—either using a fixed approach like Equal Amount or variable day-count conventions such as Actual/360 or 30/360. Setting the correct method before funding a loan ensures accurate payment calculations and prevents manual adjustments later.
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.
Tip: Selecting a default interest method simplifies origination and reduces manual adjustments later.
Interest Method
Enable All Interest Methods
Allows loan officers to select any interest method per loan.
Method | Interest Calculation for February |
Equal Amount | Divides annual interest evenly across 12 months. |
Per-Diem Based | Calculates interest based on actual days per month. |
31/360 | Assumes each month has 31 days and the year has 360 days. |
360/365 | Uses a 360-day interest rate but calculates interest over 365 days. |
Actual/360 | Uses actual days per month but assumes a 360-day year. |
30/360 | Treats each month as 30 days and the year as 360 days. |
30/360 Special | A variation of 30/360 used for specific lender requirements. |
Decide on a Loan-by-Loan Basis | Allows loan officers to select an interest method per loan commitment. |
Best Practice: If your portfolio includes various loan structures, enabling multiple methods provides flexibility for different loan types.
Leap Year Interest Calculation
Determines how interest is calculated in leap years for different loan types.
Loan Type | Leap Year Calculation |
Principal & Interest Loans | Choose between using 365 or 366 days for interest calculations. |
Interest-Only or Capitalized Interest Loans | Select whether leap years should impact per-diem calculations. |
Examples of Interest Calculation Methods
Example: February 15, 2024, Loan Origination
Principal: $10,000
Annual Interest Rate: 12%
Method | Interest Calculation for February |
Equal Amount | $1,200 annual interest / 12 months = $100.00 |
Per-Diem (365 Days) | ($1,200 / 365) × 28 days = $92.05 |
Per-Diem (366 Days) | ($1,200 / 366) × 29 days = $95.08 |
31/360 | ($1,200 / 360) × 31 days = $103.33 |
360/365 | (($10,000 × 0.12) / 360) × 365 = $101.39 |
Actual/360 | ($1,200 / 360) × 29 days = $96.67 |
30/360 | ($1,200 / 360) × 30 days = $100.00 |
Warning: Changing the interest method after a loan is funded requires unfunding and reprocessing, which can erase servicing actions and require manual corrections.
FAQs
What happens if I change the interest method after funding?
Changing the method requires unfunding the loan, which resets servicing actions. Always confirm before finalizing.
Which interest method should I choose?
If payments should remain consistent, select Equal Amount. For precise day-based calculations, choose a per-diem method.
What is the difference between Actual/360 and 30/360?
Actual/360 uses real calendar days per month but assumes a 360-day year.
30/360 standardizes months to 30 days each for uniformity.
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