NetLoan - Origination Fee & Discount/Premium Amortization Setup

OVERVIEW

If a loan has an associated origination fee that has been capitalized and will be amortized through the loan term, NetLoan can automate all the required journal entries associated with the origination fees. NetLoan can also automate the amortization related to a discount or premium by following the same steps outlined below.


STEP-BY-STEP PROCESS

  • NetLoan has the ability to amortize fees/discounts/premiums via straight line or effective interest methods. To select the desired method, navigate to NetLoan > NetLoan Setup > System Setup and select the appropriate value in the "Default Origination Fees Amortization Method" field.
  • Further, on the NetLoan Loan Type (NetLoan > NetLoan Setup > Manage Loan Types), ensure the correct method is selected for the specific loan. Listed below are the supported methods:

1. Straight Line: Evenly amortizes the fees over the life of the loan.

2. Effective Interest: Loan Principal: Each period, the fee/discount/premium is amortized by calculating the difference in interest between using the effective interest rate and the APR as applied on the loan balance.

3. Effective Interest: Loan Principal - Fee/Discount/Premium: Each period, the fees/discount/premium is amortized by calculating the difference in interest between using the effective interest rate as applied on the loan balance after subtracting out fees/discount/premium and the APR as applied on the loan balance.



  • Select the appropriate accounts that the system should utilize when recording and amortizing origination fees and discount/premiums.

    Accounting Mapping: Fees

    The Fee section of the account mapping is used to map the accounts used when capitalizing and amortizing fees origination or other fees.

    • The Capitalized Origination Fees account will be the balance sheet account that is used to establish the capitalized origination fee to be amortized.
    • The Origination Fee Income account will be the P&L account that should be used to amortize the capitalized origination fee.
    • The Fee Amortization Method account select the amortization method that should be used to amortize the capitalized origination fees.
    • If you plan on using Additional Capitalized Fees, select the default balance sheet account the fee will be held in until amortized and the default P&L account used to amortize the balance in Additional Fees Income / Expense.


Accounting Mapping: Discount / Premium

The Discount/Premium section of the account mapping is used to set the balance sheet and P&L account used to amortize loan discounts and premiums.

  • The Loan Discount / Premium account select the balance sheet account used to record the unamortized loan discount/premium.
  • The Loan Discount / Premium Income / Expense account select the P&L account used to recognize the discount/premium amortization as income/expense.


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