Servicing Director provides for several different interest accrual methods.

Interest Methods are assigned at the loan level.

These methods are:

• Arrears
  Interest that is applied in arrears pays the interest for the previous month. For example, a payment due on 6/1/2013 pays the interest up to 6/1/2013 when the payment is applied. The interest is calculated by multiplying the principal balance by the interest rate, and then dividing by 12. Arrears is the standard interest method for the secondary market.
  
  Interest Days option:
  You can select Act/360 to have the interest due each month calculated on the actual number of days between due dates, based on a 360 day year. This is for amortizing loans, so the principal and interest spread is not affected by the date the payment is made. If Act/360 is selected, the payment frequency must be monthly and the interest method must be arrears.
  
  Note: If interest days of Act/360 is selected and the investor reporting type is Scheduled/Scheduled, the interest amount remitted will not match the interest amount received, as Scheduled/Scheduled is based on 30-day months. Additionally, the scheduled balance will not reconcile.   
   

• Advance
  Interest that is applied in advance pays the interest for the current month. For example, a payment due on 6/1/2013
  pays the interest up to 7/1/2013 when the payment is applied. The interest is calculated by multiplying the principal balance by the interest rate, and then dividing by 12.
   

• Interest Only
  The interest for an interest only loan is applied in arrears; however, for an interest only loan, the total payment is applied to interest. No interest calculation is performed for these loans. When a payment is applied, the total amount of principal and interest (P&I) is applied to interest. The principal balance should never change. If payments are applied against the principal balance, you must re-calculate the P&I payment. Interest only loans have a balloon payment due at some point. Many commercial loans use this interest method.
   

• Daily/360
  For a loan with an interest method of daily/360, interest accrues on a daily basis. These loans have an accrued interest record with an accrued interest balance that increases every day when the Daily Simple Interest Accrual event is run. The interest is calculated by multiplying the principal balance by the interest rate, and then dividing by 360. The date that the payment is posted is extremely important for these types of loans because it affects how much of the payment is applied to principal and how much is applied to interest. When payments are applied, the P&I payment is applied to the accrued interest balance first. Then, the remaining amount is applied to principal.
   

• Daily/Actual
  For a loan with an interest method of daily/actual, interest accrues on a daily basis. These loans have an accrued interest record with an accrued interest balance that increases every day when the Daily Simple Interest Accrual event is run. The interest is calculated by multiplying the principal balance by the interest rate, and then dividing by 365 or 366—depending on the year. The date that the payment is posted is extremely important for these types of loans because it affects how much of the payment is applied to principal and how much is applied to interest. When payments are applied, the P&I payment is applied to the accrued interest balance first. Then, the remaining amount is applied to principal. 

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