New Amortization Type: Principal First
A new amortization type called “Principal First” has been added to the Cash Flow Engine, designed mainly for employee or staff loans offered at subsidized rates. In this structure, the entire principal is repaid first while simple interest accrues on the reducing balance, and the accumulated interest is settled later in equal installments without compounding. Such loans receive special accounting treatment under standards like IFRS 9 due to their concessional nature.
Many banks and companies lend money to their employees for various purposes. These loans are generally at a subsidized interest rate and repayment terms are favorable to the employee. These loans are structured such that full principal balance is amortized first and during that period interest keeps accruing on reducing balances. After full principal is repaid, accumulated interest is repaid in equal installments. Interest is not compounded.
These types of loans (generally referred as Staff or Employee Loan) receive specific treatment under various Accounting Standards like IFRS9.
Steps to enable and configure
You don't need to do anything to enable this feature.