NetLoan - Deferred interest

Overview

Deferred interest is a second interest amount that NetLoan calculates alongside the loan's regular interest. It accrues each period at a separate Deferred Interest Rate and builds up in its own balance, Accumulated Deferred Interest. Regular payments don't pay it down. Instead, the accumulated balance stays separate from the loan balance until it is capitalized into principal with a Capitalize Deferred Interest payment, or carried into a new loan on refinance.

For each schedule line, NetLoan calculates deferred interest as the loan balance at the start of the line multiplied by the Deferred Interest Rate. It is prorated over the line's interest period using the same day count as regular interest. You can see the per-line amount and the running total on the loan schedule in the Deferred Interest and Accumulated Deferred Interest columns.

Prerequisites

The Deferred Interest feature must be enabled on the System Features tab of the NetLoan System Setup page. The deferred interest fields on the loan record are hidden until it is.
Permission to edit loan records and to create loan modifications.

Step-by-step process

Enable the feature

Open the System Features tab of the NetLoan System Setup page.
Check Deferred Interest.
Click Save.

Set up deferred interest on a loan

Open the loan record in edit mode, or create a new loan.
On the Main tab, in the Schedule Information section, enter the Deferred Interest Rate as an annual percentage.
(Optional) If you're bringing over a loan that already has deferred interest built up, open the Accounting tab. In the Accounting Overrides section, enter the balance as of the origination date in Beginning Accumulated Deferred Interest.
Click Save. The standard amortization schedule sublist does not show deferred interest. To display the Deferred Interest and Accumulated Deferred Interest columns, create a custom copy of the sublist and add them, as described in NetLoan - Add Columns to Amortization Schedule Sublists.

Capitalize accumulated deferred interest

Open the loan record and click Modify.
Set the Modification Type to Adjust Loan Terms.
On the Payments subtab, click Add to add a payment line.
Set the Payment Type to Capitalize Deferred Interest. You don't need to enter a payment amount.
Set the Effective Date.
Click Modify to process the modification.

On the schedule line for that date, the Accumulated Deferred Interest balance is added to the loan balance, and Accumulated Deferred Interest resets to 0. Regular interest then accrues on the higher balance. The payment can also be entered on a modification proposal or directly on the loan's Payments subtab; those workflows are the same as in NetLoan - Record a Capitalize Accrued Interest Payment.

Change the deferred interest rate

Open the loan record and click Modify.
Set the Modification Type to Adjust Loan Terms.
In the Modification Information section, enter the new rate in Adjusted Deferred Interest Rate. Enter 0 to stop new deferred interest from accruing. The existing accumulated balance stays until it is capitalized.
Click Modify to process the modification.

Limitations / things to be aware of

Deferred interest does not post journal entries

Neither the per-period deferred interest nor a Capitalize Deferred Interest payment creates a journal entry. Deferred interest is tracked only on the loan schedule. To record it in the GL, you need to post your own entries.

Uncapitalized deferred interest is cleared at the end of the loan

On the loan's final schedule line, whether at maturity, payoff, or refund, Accumulated Deferred Interest is reset to 0. Capitalize the balance before the loan ends if it needs to be collected.

Use an effective date with no other payment

If a Capitalize Deferred Interest payment has the same effective date as another payment on the loan, the deferred interest is not capitalized. Choose a date that has no other payment.

Payments don't reduce it. Regular, extra, and payoff payments are applied to the loan balance and regular interest only. A Capitalize Deferred Interest payment or a refinance are the only ways to clear the accumulated balance.
Capitalization frequency doesn't apply. The loan's Interest Capitalization Frequency setting covers regular accrued interest only. Deferred interest is capitalized only when you add a Capitalize Deferred Interest payment.
The rate must be set on the loan first. The Adjusted Deferred Interest Rate field only appears on the Adjust Loan Terms modification if the loan already has a Deferred Interest Rate. To start deferred interest on a loan that has none, set the rate on the loan record instead.
Refinancing. When a loan is refinanced, its accumulated deferred interest is added to the new loan's balance and recognized as interest income. The modification shows it as Deferred Interest At Time of Refinance.

Record structure

Field Name	Field Type	Description	Example	Field ID
Deferred Interest Rate	Percent	Annual rate used to calculate deferred interest on the loan.	2.5%	custrecord_da_loan_deferred_apr
Beginning Accumulated Deferred Interest	Currency	Deferred interest balance as of the origination date, for loans brought over from another system.	$1,250.00	custrecord_da_loan_beginning_def_int
Deferred Interest (schedule line)	Currency	Deferred interest calculated for the line.	$104.17	custrecord_da_lse_deferred_interest
Accumulated Deferred Interest (schedule line)	Currency	Running total of deferred interest not yet capitalized.	$1,354.17	custrecord_da_lse_deferred_accum_int