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From: Mike
I have been tasked with creating a program that will
generate an amortization schedule.
Nostalgia setting in. I spent eight years writing software for credit unions. I assume that you're not writing for an established financial institution, however.
Two key factors you need to find out are interest method and payment frequency. Interest methods are regulated by state law. If you we're writing for a federally chartered institution, then federal law would also apply.
Credit unions generally offer many options for payment frequency [weekly, bi-weekly, semi-monthly, monthly, quarterly, semi-annually, annually].
Regarding interest method, most credit unions use a simple daily rate [annual rate divided by 365]. Simple interest for a payment-period is calculated as daily rate * number of days in the payment period * loan balance. After you've calculated simple interest for a period, the amount you apply to principal is calculated as the scheduled payment minus periodic interest.
Why use simple daily interest instead of periodic interest [monthly, for example]? It's more fair for both parties when early or late payments are made. Borrowers don't want to pay a full month of interest when making a payment a week early.
So if you use a simple daily interest method in processing a payment, you should use that method in forecasting an amortization schedule too.
Of course, if you're working for the mafia [aka: payday-loan companies], they may have you apply any payment [no matter the size] entirely to interest, so the loan never amortizes ;-)
Nathan.
midrange.com
