Principal Overpayment

Principal overpayments provide a distinct way to process non-scheduled overpayments, applying the funds directly to the outstanding principal balance. This can then impact your repayment schedule based on the chosen prepayment recalculation method, either by reducing the amount per installment or by reducing the number of installments.

This functionality is supported for dynamic mortgages. For interest only loans, principal overpayments can be made by entering a Custom Repayment and specifically allocating it to the principal.

How it works

• Dedicated overpayment option: Use the Make Principal Overpayment button to allocate your payment for principal reduction under the rules of principal overpayment.
  • You can also use the API endpoint POST /loans/{loanAccountId}/principal-overpayment-transactions.
• Separate transaction log: Every overpayment in the principal balance will be logged as a distinct Principal Overpayment Entered transaction at the account level.
• Direct principal allocation: Any funds you submit using this new overpayment method are allocated entirely to the loan’s outstanding principal balance. Importantly, interest is neither applied nor paid with this specific principal overpayment transaction.
• Immediate balance updates: The overpayment instantly reduces your loan’s principal balance. This immediately updates how future interest is calculated, potentially lowering the total interest you’ll pay over time.
• Schedule recalculation: Your loan schedule is then recalculated based on your chosen prepayment recalculation method:
  • Reduce number of installments: Shortens your loan term by reducing instalments from the end of the loan.
  • Reduce amount per installment: Recalculates the total amounts due for your remaining installments, making each payment smaller.
• Threshold consideration: If your loan uses the "Reduce Amount per Instalment" method, the new payment amount (PMT) will be recalculated while also considering any thresholds set up at the account level.
• No installment allocation: While the overpayment doesn't directly pay any specific instalment on your schedule, it does have a schedule representation. This is shown in a separate column purely for informational purposes, making it easier to reconcile the amounts.
• Early repayment charges: Principal overpayments may be subject to early repayment charges.

note

In order to post a non-scheduled overpayment, the account must not have any late installments. If there are any late installments, these should first be paid before the non-schedule overpayment can be allocated to the account.