![]() If the payment is greater than the interest due, principal is reduced. No interest is charged on the balance of this account. ![]() Rule approach, in effect, establishes an account for interest accrued but not paid. Rule method can be used in place of the actuarial method to avoid charging interest on interest. Where negative amortization occurs, the U.S. So, in situations where payments are not large enough to cover current interest, use of the actuarial method may not be legal and it may be necessary to use some other methodologies, such as U.S. Some states have laws that forbid charging interest on interest. The resulting increase in principal due to unpaid interest is referred to as negative amortization. This compounding of interest makes sense since the borrower, in effect, receives an additional loan of $25 for a month. ![]() Interest for the next month will be greater by the amount of interest on the additional $25. With monthly compounding, if the interest for a given month is $100 and only $75 is paid at the end of that month, then the $25 unpaid interest is added to the balance. ![]() Under the actuarial method, unpaid interest becomes part of the principal at the end of each compounding period. Be alert to possible differences between TValue and your own requirements. Our experience with a wide variety of users over the years has led us to this usage. Interest rate and related terminologies may vary. The definitions provided here reflect usage within the TValue programs. ![]()
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