Introduction
Capitalizing interest allows unpaid interest to be added to the loan’s principal rather than requiring upfront payment. This method is useful for construction loans, fix-and-flip financing, and other short-term loans where reducing immediate cash outflows is beneficial.
Navigating to This Section
Click the Gear icon in the top-right corner to open Settings.
Select Company Settings.
Use the left-hand navigation menu to expand Loan Setup/Origination.
Locate Repayment Methods.
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Capitalizing Interest
You can set up Capitalizing Interest to apply at different frequencies based on borrower or investor preferences.
Capitalization Method | Description |
Loan Payment Frequency | Interest is added to the principal at each scheduled payment interval (e.g., monthly, bi-weekly), aligning with the loan’s repayment schedule. |
Daily Compounding | Interest accrues daily and is capitalized at the end of each day, leading to faster interest accumulation. |
Deferred Interest | No compounding occurs, and interest is deferred for later repayment, typically at loan maturity. |
Best Practice: Ensure the selected capitalization method aligns with borrower agreements to prevent miscalculations in repayment schedules.
Additional Settings
Setting | Description |
Display Borrower/Investor Capitalizing Mode when Capitalizing Interest is Selected in Loan View | Displays the capitalizing mode options for borrowers and investors when capitalizing interest is enabled in loan view. |
FAQs
When should I use Capitalizing Interest?
This method is beneficial when borrowers prefer to defer interest payments to reduce short-term expenses, such as in construction or bridge loans.
How does capitalizing interest impact loan repayment?
Accrued interest increases the loan’s principal balance, which can result in higher total repayment amounts over the loan term.
Can I change the capitalization method after origination?
No, capitalization settings must be configured before loan funding to ensure accurate calculations.
Need Further Assistance?
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