Unapplied Funds
Unapplied Funds is a feature for Mambu Mortgage products that allows customers to make payments exceeding their outstanding loan balance. Rather than rejecting the transaction, Mambu credits the surplus to a dedicated reserve called the Unapplied Funds balance.
This solves a common operational problem at end of term: borrowers often want to send a final lump-sum payment to fully redeem their mortgage, but the exact balance can shift due to accrued interest or fees. Previously, Mambu rejected any payment above the outstanding balance, forcing lenders into manual workarounds.
The feature is opt-in and controlled at the product level.
Unapplied Funds is available on Mortgage products only, for both Dynamic and IOEI product types. See the Loans Overview for more information on available configurations.
How it works
The Unapplied Funds reserve
When the feature is enabled, a new balance type — UNAPPLIED_FUNDS — appears at the loan account level. This balance is classified as a liability: it represents funds the lender holds on behalf of the borrower and must return.
Funds in this reserve:
- are not automatically applied to any loan balance
- do not generate interest
- must be explicitly withdrawn or returned to the customer
The Unapplied Funds balance cannot be used directly to pay down outstanding loan balances. To use the reserve to settle a balance, you must first withdraw the funds and then make a separate repayment.
How funds enter the reserve
There are three ways funds can be credited to the Unapplied Funds balance:
- Payment Made (Redraw) — the primary flow. When a redraw payment exceeds the outstanding balance, any surplus is automatically credited to Unapplied Funds. The repayment itself is not rejected.
- Custom Repayment — a user explicitly allocates a specific amount to Unapplied Funds as part of a repayment, via the UI or API. This is used when the borrower wants to intentionally pre-load the reserve.
- Regular Repayment — if a regular repayment exceeds the total of interest, principal, fees, and penalties due, any remaining amount after all balances are settled is automatically redirected to the Unapplied Funds reserve.
All existing balances must be fully settled before any surplus is directed to Unapplied Funds. If non-scheduled balances remain unpaid, interest accrual continues as normal.
How funds leave the reserve
Funds are removed from the reserve using the WITHDRAW_UNAPPLIED_FUNDS transaction type, available via both the UI and the API.
On withdrawal:
- the Unapplied Funds balance is debited
- the funds are returned to the transaction source (back to the borrower or to an external account)
To use the reserve to settle remaining non-scheduled balances on the loan, withdraw the funds first, then make a separate repayment.
Interest accrual after principal reaches zero
Once the principal balance reaches zero, interest accrual stops. The account remains open if any Unapplied Funds balance is still present, but no new interest is generated on the cleared principal.
Account lifecycle rules
The following operations are blocked while a non-zero Unapplied Funds balance is present. You must withdraw or clear the reserve before proceeding.
| Operation | Allowed when Unapplied Funds = 0 | Allowed when Unapplied Funds > 0 |
|---|---|---|
| Account closure | Yes | No — withdraw funds first |
| Pay-off | Yes | No — withdraw funds first |
| Rescheduling | Yes | No — withdraw funds first |
| Refinancing | Yes | No — withdraw funds first |
| Repayment / Deposit | Yes | Yes |
| Withdrawal of Unapplied Funds | N/A | Yes |
The account stays in the Open state until the Unapplied Funds balance is fully cleared. Only then can it be closed.
Enabling Unapplied Funds on a product
You do not need to create a new loan product. Unapplied Funds can be enabled on an existing Mortgage product:
- Go to the product configuration in the Mambu UI.
- Locate the Allow Unapplied Funds checkbox and enable it. Note that the Allow Unapplied Funds option is only visible when the system-level feature toggle is enabled. Contact Mambu support if you do not see this option.
- In the Accounting Rules section, configure the new Unapplied Funds liability GL entry point.
- Save the product configuration.
Accounting
The following accounting entries apply to all flows involving Unapplied Funds. Adjustments to any of these transactions follow the same debit/credit structure in reverse.
| Financial action | Debit | Credit |
|---|---|---|
| Repayment → Unapplied Funds (Regular or Custom) | Transaction Source (Asset +) | Portfolio Control (Asset –) + Unapplied Funds (Liability +) |
| Payment Made → Unapplied Funds (Redraw) | Transaction Source (Asset +) | Portfolio Control (Asset –) + Unapplied Funds (Liability +) |
| Withdrawal from Unapplied Funds | Unapplied Funds (Liability –) | Transaction Source (Asset –) |
A liability GL entry point labelled Unapplied Funds must be configured in the product's Accounting Rules before any transactions involving the reserve can be processed. For more information, go to Accounting setup.
Using Unapplied Funds via the API
Repayment with Unapplied Funds allocation
To allocate funds explicitly to the Unapplied Funds reserve during a custom repayment, include UNAPPLIED_FUNDS as a line item in the repayment allocation payload. All other outstanding balances should be settled first in the allocation order.
Withdrawal
Use the dedicated WITHDRAW_UNAPPLIED_FUNDS transaction endpoint to debit the reserve and return funds to the transaction source. The request must specify the amount to withdraw. Partial withdrawals are allowed — the remaining balance stays in the reserve.
Balance visibility
The UNAPPLIED_FUNDS balance is visible in:
- the Loan Account Summary (UI and API)
- the Transaction View — each transaction affecting the reserve is recorded with its type and amount
Limitations
The following are not part of this feature:
- Automatic application of Unapplied Funds to outstanding loan balances
- Creation of new loan products (existing products can be updated)
- Use of Unapplied Funds to directly pay balances on other accounts (a withdrawal and separate repayment is required)
Frequently asked questions
Can I enable Unapplied Funds on an existing product?
Yes. You do not need to create a new product. The feature can be enabled via the Allow Unapplied Funds checkbox on any existing Mortgage product, provided the system-level toggle is active.
What happens if I try to close an account with Unapplied Funds?
The closure will be blocked. You must first withdraw the full Unapplied Funds balance before the account can be closed, paid off, rescheduled, or refinanced.
Does the reserve earn interest?
No. The Unapplied Funds balance is a liability reserve. It does not accrue interest.
Can I partially withdraw from the reserve?
Yes. Partial withdrawals are supported. The remaining balance stays in the reserve until it is either withdrawn fully or the account is prepared for closure.
What if non-scheduled balances remain after the principal is paid off?
The account will remain open and you need to determine how to handle those balances. Options include withdrawing from Unapplied Funds and making a separate repayment to settle them. Interest will continue to accrue on any unpaid balances until they are cleared.
Is Unapplied Funds available on all Mambu loan products?
No. This feature is scoped to Mortgage products only, and is available on both Dynamic and IOEI product types.