When utilizing the Interest Application setting of “Between Periods” you will have some extra options when posting payments. One area of particular importance is the “Extra Towards Next” setting, which can greatly effect the amortization of a loan. The between periods setting pegs payments towards a payment due date, and not the actual post date of the payment, which gives you have the ability to decide which due date the payment is pegged to. Because of this, it is important to ensure you fully understand the Extra Towards Next options, and how they will alter application of a payment.
Extra Towards Next Options
To access the “Extra Towards” options, access a loan, once in the loan in question select the Payments > Log Pmt tab. Once selected you will see the following options:
Because this loan was initially setup as a “Between Periods” loan you will have an options on the ‘Log Pmt’ screen labeled “Pay Extra Towards. The selection in this section will only have an effect in the event that the payment being made pays more than the amount due in the current period. For Example: If the regular payment is $240.00, and the client sends a check for $300.00, your selection determines what the system does with the remaining $60.00. It should be noted that your selection in this section is not different than the “Payment Type”, and only effects the amount in excess of the amount due on the payment due date.
Accessing the drop-down menu will reveal the following options (please review the image from the transactions tab associated with each option):
- Principal: By selecting this option the extra amount will be applied directly to the principal balance.
You will two entries on the transactions tab with the same payment ID (5218 in the example above). The second entry represents the extra amount applied directly to the principal balance.
- Next Payment: By selecting this option the extra amount will be applied towards the next periods payment:
You will notice with this selection that your payment entries are now separated by a scheduled payment. The amount on the second entry is also pegged to the due-date of the next payment rather than to the post date. Despite the two entries applying to different periods, they will share the same payment ID (5219).
- Hold: When selecting this option any amount in excess of the standard payment will be applied towards “Hold”.
Hold operates similar to an escrow account on the loan, and it should be noted that even if there isn’t a hold setup on the account the system will still apply the amount towards Hold. Additionally, you can refer to the Escrow > Hold section within the loan to see the application of the transaction to Hold:
- Escrow: When selecting this option any amount in excess of the standard payment will be applied towards “Escrow”.
Escrow operates as an additional account on the loan, and can have payments applied directly towards it. It should be noted that even if there isn’t a hold setup on the account the system will still apply the amount towards Escrow. Additionally, you can refer to the Escrow tab within the loan to see the application of the transaction to Escrow:
- Fees: When selecting this option any amount in excess of the standard payment will be applied towards “Fees”.
In addition, it should be noted that even if there are no fees currently due on the account, the extra portion will still be applied towards “Fees”, and will apply towards the fee.