Osler law firm offers an excellent article regarding the London Interbank Offered Rate (LIBOR) which will eventually end. And even in these difficult times of the COVID-19 pandemic, there is no suggestion that LIBOR’s end will be delayed and should end, as expected, on December 31, 2021.
A text by Andrew G. Herr, Lisa Mantello and Joyce M. Bernasek that you can read here.
Financial institutions, including banks, asset/fund managers and insurers, as well as established FinTech businesses and start-ups, have been presented with major disruptive events with the advent of COVID-19 and national lockdowns, and with the impending risk of global or regional recessions.
In May and June, a group of attorneys from the law firm Norton Rose Fulbright undertook a survey of a range of banks, asset/fund managers, insurers, established FinTech businesses, FinTech start-ups and venture capital and consulting firms across the globe. You can consult the key findings of this survey.
To read the article, follow this link.
Question: I would like to convert 7500 of accrued interest to principal. Can this be done in Margill Loan Manager?
Answer: Certainly with special Line statuses.
First, go to Tools > Settings:
Make sure “Interest paid” is available (not checked to Hide from menu) as well as an “Add. Principal X” Line status.
We will rename Add. Princ. (3) to “Capitalized interest” (or another name that fits your needs). We cannot however rename “Interest Paid” so you must be careful when using this. If it is already used to pay, on a cash basis, pure interest in other loans (as opposed to using it as we will do now), then you will have to note this in your reports not to mix up cash and non-cash items.
Normal scenario where Interest remains interest (in Simple interest no interest is generated on interest – Day count is 30/360 for equal interest every month):
We will “pay” 7500 in interest and add 7500 in this new “principal” (non cash). Insert 2 lines (right mouse click)
Since interest is now capitalized (so really brought to Principal), the new monthly interest amount increases. You could have said no interest on the 7500 but this becomes a little strange (right mouse click on the line).
When reporting you will need to isolate these special transactions as not to mix them up as cash transactions.
Personally, I would not have converted interest to principal since I believe from an accounting perspective interest must remain interest, not be converted to principal, but you are doing this for a good reason…
I would have done it this way by telling the system to capitalize the 7500 (thus there would be interest on this amount- goes to Computational Balance):
Comes up to the same mathematical results but interest remains interest:
After more than 2 years of work, the latest version 5.1 of the User Guide is now available. In it you will learn all you need to know about the new features.
A host of new features have been introduced with the launch of Margill Loan Manager 5.1.
New features are fun but you need to know they exist.
We’ve hosted a 30-minute webinar in which we have explored these new functions.
Q: My law firm must calculate the interest from June 30, 2019 to May 28, 2020 on an amount due by an insurance company. I must be able to see the interest that accrues every day.
Interest rate is 4% annually and amount is 150,250.33.
A: In Margill Law Edition, you would usually use the “Interest on one amount between two dates” calculation:
Data entry:
This would give you the amount as two lines with a split on December 31 at midnight:
I know, you want detail, lots of it, on a daily basis so instead of using “Interest on one amount between two dates”, use the very powerful “Recurring Payments (Amortization)” calculation that can do just about anything, not only loans or mortgages.
Here is how I would enter the data to see the payments every single day. Notice:
We get a 333 line schedule with the daily interest for each day.
We get almost the same amount as in the calculation done with “Interest on one amount between two dates”. We are higher by 0.66 since the calculations below are done line by line and the 2 decimal point pennies leads to this slight difference.
—————————————
In Simple interest, using the Actual/Actual Day count, the interest in 2019 is slightly higher than in leap year 2020. This also could have be done in Compound interest where the daily interest would change almost every day.
Remember the interest for the end date is excluded. So interest does not include the interest for May 28, 2020.
Federal, state and provincial governments, townships, cities and towns all over the world have created very generous loan programs to help businesses as they struggle with the global pandemic and the effect of confinement.
These loans can take many shapes and finding the right software to properly create and manage these is not always easy. Excel, for all the respect I have for this great software, can do part of the job but struggles with many interest calculation items and exceptions that are the normal for these loans.
Here are various scenarios these loans can take and how Margill Loan Manager can be used to create payment plans adapted to the loan programs or to the borrower’s needs. Then Margill can easily manage or service the actual payments as they are paid… or not not paid…
Interest throughout, deferred payments
Result – notice first payment is December 1, so no payments from June 1 to November 1 inclusively:
+++++++++++
We could have done this slightly different to see the first 6 months with no payments but this is not required since Margill extracts the accrued interest and balance at any date…
I would have entered 42 payments (36 + 6) and changed the first payments to 0.00 and recomputed the next 36 payments. A 10 second process.
A Comment can be added in the Comment column or we (you, the Margill Administrator) could have created a special Line status called “Deferred – Covid 19”, for posterity… Hmmm…
No interest for a number of months, no payments for a number of months, deferred payments
We can take the results from the example above. Right mouse click to change the interest rate for the first 3 months to 0.00%:
Select the 36 payments (as of line 7), right click and recompute the payments to give a 0.00 ending balance:
Final result (top half of 36 payment schedule only):
Notice the borrower saves about 5,00 per payment because of the 3 months with no interest.
Interest-only for a number of months followed by principal and interest payments
Entered 42 payments since 6 months are interest-only and 36 months P&I:
Select Lines 7 to 36 and “Payments Adjusted for Balance = X” where X will be 0.00
Final result (top of 42 payment schedule only):
Catering to seasonal industries with irregular cash flows
High cash flow months (next year we hope!) are June, July, August and September so borrower will pay 1250 per month:
Remaining payments adjusted for Balance = 0
Final payment schedule:
A host of other possibilities and mixes are available including fixed principal payments, interest-only payments in between lump sum payments, extra lump sum payments over time, early payoff, etc.
Adapt the payment schedule to the true needs of our struggling entrepreneurs!
In order to have an even better idea of what Margill Loan Manager can do for you, we have added 3 new videos:
The first one offers an overview or the Main Window and how you can customize it for your own needs:
Main Window Overview and Customization
In the second one, we look into how the Payment Schedule looks and feels:
Payment Schedule – Look and Feel
And lastly, always on the Payment Schedule subject, we take a look at the Critical Fundamentals:
Payment Schedule – Critical Fundamentals
Enjoy and do not hesitate to contact us at [email protected] if you need any information.
In 2008, Marc Gelinas, CEO of Jurismedia Inc., developer of Margill interest and loan servicing solutions, published the White Paper in the Real Estate Law & Industry Report titled “The Lost Art of Interest Calculation”. Since then, more has been learned and lending practices have evolved thus this major update. The White Paper deals with the fundamentals of applied interest calculation, unfortunately often forgotten by industry professionals.
Most companies have seen their business operations seriously affected by the COVID-19 pandemic and the various government measures taken to mitigate its impact on the population.
Companies have to contend with various issues in the short, medium and long term, such as the closure of many companies’, clients’ and suppliers’ places of business, restricted opening hours, and working from home.
Businesses need to maintain the relationship of trust they have built with their lender a business partner with whom it pays to be proactive, show transparency and uphold best practices during these difficult times.
Continue reading this text by François Renaud, Brigitte Gauthier and Frédéric Boivin Couillard of Lavery.
I love spreadsheets, they are absolutely amazing for doing so many things. They are hugely flexible, powerful and allow you do to just about anything (almost). However, as we all know, they are also very dangerous because of human error!
I recently implemented Margill Loan Manager with a new client who had been using spreadsheets (Excel) to manage its loans. As loans were imported we noticed that the interest calculated in Margill Loan Manager was $6000 higher for a quarter (3 months) that in was in Excel.
When we looked at the formulas used to calculate interest, we immediately found the error. Notice the top calculation 245,000 x 14.5% is interest for 1 year, then divided by 12 for 1 month and multiplied by 3 for three months (very basic calculation method):
In the second calculation in the spreadsheet, notice that instead of a multiplication sign in the formula (12*3), a comma was inserted by error (12,3), thus the almost $6000 difference in total interest for those three months!
The same error was replicated a couple of times in the same loan and in other loans since this was used as a template.
This error could have cost the lender tens of thousands of dollars before being spotted.
Had the error been done the other way around, so to the advantage of the lender, even more serious legal repercussions could have resulted had this been a consumer loan.
So, if you use spreadsheets, do be double cautious. even better, invest in a proper loan servicing solution. Simply finding this error paid many times for the user’s Margill Loan Manager.
See also: