Setting Your Default Values in eZMath and ZMath

by Michael Shohoney December 23, 2008 05:18

Prior to making any calculations in our loan calculation software (eZMath and ZMath), it is very important that you take the time to properly set the defaults.  How do you do this?

On the loan type selection screen, select the Defaults tab.  A screen will be loaded that offers a number of choices.  You should set values for each of these and those values will be used on your calculations within eZMath and ZMath.  You can alter some of the choices in the Options and Variations screen on individual loans but what you choose as defaults here will be displayed as the default selection in that Options and Variations screen.  Below I list each of the default items, the options within each of those items and some suggested values that you may want to use.

1.  Interest Type--Your choices you have on this item are Simple, Add-On and Discount.  Simple interest is going to be used in virtually any loan you calculate and should be the default value you set in this item.  It is possible that if you are in commercial or consumer lending that you may encounter an Add-On interest rate in an installment loan.  If you do, you must set that default here as Add-On is not a changeable option within the Options and Variations screen.  Discount interest is only offered on single payment loans and can be changed in the Options and Variations screen.

2.  Basis--The choices you have on this item are 30/360, Actual/365, Actual/360, Actual/Actual, 30/365 and 30/Actual.  These are accrual bases for the calculation of interest.  One of these will apply to your institution's policy and/or your lending discipline (i.e. consumer, mortgage or commercial).  You should set the value to the accrual basis you use most in your day-to-day lending.  This option is changeable on the Options and Variations screen so if you have a loan that is a different basis than you normally use, you can easily change it for an individual calculation.  We will have a blog post regarding basis in the near future.

3.  Odd Interest Adj.--The choices you have on this item are Amortize, Prepaid--Borrower Paid, Prepaid--Non-Borrower Paid, Amortize--Adj. Final Payment, Irregular First Payment and Ignore.  What you are choosing here tells the loan calculation software what to do with the interest accrued during a long or short (i.e. irregular) first period.  That is, loans where the time between the advance date and the first payment date is not exactly one unit period.  This selection is changeable on the Options and Variations screen so you should set this to what you normally do while remembering that you can change it on a loan by loan basis.  We have a blog post regarding this selection in the near future.  For the time being I will tell you that if I was a mortgage lending, my default setting would be Prepaid--Borrower Paid.  If I was a consumer lender I would set it to Amortize.

 4.  Prepaid Basis--The choices you have on this item are 30/360, Actual/365, Actual/360, Actual/Actual, 30/365 and 30/Actual.  This is the basis that you use IF you've selected one of the prepaid choices on Odd Interest Adj.  What it allows you to do is accrue that prepaid interest on a basis that is the same or different than the accrual basis on the loan.  The necessity for this choice came along due to the standard practices used in the mortgage industry.  It is the general practice to have a 30/360 accrual basis on a mortgage while utilizing an Actual/365 accrual basis on the prepaid interest.  You should choose the value here that corresponds to the practices of your institution.  This item is changeable in the Options and Variations screen.

5.  Interest Rate Rounding on ARMs--The choices you have on this item are Round Up, Round Down, Round to the nearest 1/10, Round to the nearest 1/8, Round to the nearest 1/4, Round to the nearest 1/2 and No rounding.  This item sets the rounding used when adding the values of Index and Margin on loans that have an adjustable rate.  You should set this to the policy of your institution.  This item is NOT changeable in the Options and Variations screen.

6.  Rounding Method--The choices you have on this item are Nearest, Round Down and Round Up.  This sets the way you round the payment calculated by eZMath and ZMath.  You should set this based on the policy of your institution.  As a general rule, we see most lenders round their payments up.  The reason for this is that by rounding up you guarantee a final payment that is always less than the regular payment amount.  This tends to be psychologically better from the borrower's perspective.  This item is not changeable in the Options and Variations screen.

7.  US Rule Accrual--The choices you have on this item are Actuarial Accrual and US Rule Accrual.  You should set this default to the correct value for your state regulations regarding interest accrual.  There are a number of states that require the use of US Rule Accrual.  US Rule Accrual does not allow the capitalization of interest (i.e. accrual of interest on interest).  If you have questions regarding the status of your state and the setting you should use here, please confer with your compliance officer or legal counsel.  It should be noted that regardless of what you choose here, all APRs in eZMath and ZMath are calculated using the Actuarial method of calculation.

 In conclusion, what you set as your defaults on this screen can greatly influence the results you get using our loan calculation software.  By using some common sense, advice from the policy makers at your institution and paying attention to the practices and traditions within your lending discipline can help you effectively set these default values so that working with the software is easier and produces the results you seek.  As always, if you need any help with any of this content, please feel free to contact us.  We're more than happy to help you get things set properly.