# Payment Type and Waterfall Application

Complexity:

Audience: Management Team, Accounting, Administrator, Compliance

### Introduction

LoanPro's payment types feature allows you to choose a payment's waterfall application, or the order in which the money from a payment applies to the different parts of a loan like interest, principal, and fees. Some payment types—like "Principal Only"—will direct all funds into one or two areas; others will direct funds to all parts of a loan but in different orders. This feature is useful if you need to place an emphasis on collecting specific portions of loans, such as escrow accounts for taxes or paying off a fee.

This article explains how to set up payment types. If you'd like to learn about selecting payments types when logging and processing payments, our Payments – Intermediate walks you through the process. If you're not familiar with how payments work in LoanPro, we recommend going back to the basics and reading Payments 101 first.

### Default Payment Types

Your tenant has a few default payment types. Here's the full list of payment types you can select:

• Regular. This is a normal type of payment you can make.
• Principal Only. This is if you want to make a payment solely to principal.
• Discount. This is a payment that only goes towards discount.
• Fees Only. This is a payment that only goes towards fees.
• P&I. This type of payment goes towards both interest and principal.
• I&P Only. This type of payment goes towards interest and principal.
• IFP. This type of payment would go towards interest, fees, and principal.
• Escrow. This type of payment would go towards escrow.
• Custom. This type of payment allows you to 'force' how a payment will allocate (ex. $100-principal,$50-fees, and 25-interest).
• Payoff. This type of payment goes only towards payoff on the loan.
• Payoff Fees then Due Fees. This payment type goes towards payoff fees and then towards due fees.
• Interest, Payoff Fees, Due Fees, Principal. This payment type goes towards Interest, payoff fees, due fees, and then principal.
• Custom - User Forced. This is similar to custom type but this allows you to put extra towards the amount you are "forcing" the payment to allocate to. If you pay off more interest than is due, this will let interest due on a loan go negative.

### Configuring Payment Types

In addition to the default types, you can create your own. Payment types can be created and edited by navigating to Settings > Loan > Payments > Types within your company account. As shown below, click 'Add' to create a new payment type.

To create a new payment type, click 'Add'.

Here, you can determine the settings for your new payment type. Begin by giving the payment type a name and selecting a status. By default, new payment types are set to "active," but you can change this with the 'Status' drop-down.

Next, choose the order that the payments will apply by using the Payment Application selection area. This area includes a list of several default areas of the loan, as well as any escrow buckets you've created.

Expand the Full List of Payment Waterfall Components
Here's a full list of the components you can incorporate into your payment waterfall application:

 Component Description Due Principal Principal that has come due so far on the loan that has not yet been paid. Due Interest Interest that has come due so far on the loan that has not yet been paid. Due Fees Fees that has come due so far on the loan that has not yet been paid. Due Amounts for Individual Fee Types A separate item will be available for each fee type (fee types categorize standard fees only). This allows for the prioritization of payment application by fee type. Payoff Fees Unpaid payoff fees on the loan. These have not come due yet, and only come due at payoff. Adding them to the waterfall application will let payments apply to them earlier. Principal Balance The unpaid portion of the loan principal. This is not a due amount of principal, but will let payments apply to principal before they apply to any other portion of the loan. Due Discount Discount that has come due so far on the loan that has not yet been paid. Discount is a revenue portion of the loan principal. Due Escrow The total escrow that has come due so far on the loan that has not yet been paid. This is the total for all escrow buckets. Due Amounts for Individual Escrow Buckets A separate item will be available for each escrow bucket. This lets payments apply to buckets that are higher priority than others.

To specify the order in which amounts will apply to separate portions of a payment, click the loan portion that you want the payment to apply to first and then click > to add it to your chosen order. Repeat this process with the other loan portions in the order you want payments to apply to them.

Since discount is a portion of principal, choosing "Due Discount" will also choose "Due Principal" and vice versa. Whichever one you select is the one that payments will apply to first.

#### Charge Type Application Order

Each Charge Type will be shown in the payment application options. Charge Types specifically categorize standard fees. There will be a single option for Payoff Fees if you would like to have payments apply to those. There will also be a single option for Due Fees. If Due Fees is added to the payment application, it will not be possible to add individual Charge Types. If you try, you'll receive the following warning:

Similarly, if you have a Charge Type added to the payment application, you won't be able to add due fees to the payment application. If you try, you will receive this warning:

If a charge type is used in a Payment Type, you will not be able to delete that charge type.
Example
When payments apply to Charge Types, they will apply to the earliest assessed fees in a category first. For example, if your payment application specifies that payments should apply to NSF Fees then to Convenience Fees, and you have the following two NSF Fees on the loan:

- $15 assessed on 10/15/2021 -$20 assessed on 12/20/2021

A payment would apply first to the 10/15/2021 charge until it's completely paid, then another payment would apply to the 12/20/2021 charge until it's completely paid. After that, payments will apply to Convenience Fees in the order they were assessed.

#### Escrow Application Order

If you select “Due Escrow” from the payment portions, a new selection will appear that will let you specify how the order of the payment will apply to individual escrow buckets. You can add escrow buckets to the application order in the same way as adding other payment portions.

If a payment is not fully applied using a particular payment type, the unapplied portion will apply to principal by default. For example, if you were to use a payment type that only applied to standard fees but there were no outstanding fees on the loan, then the payment would apply to principal instead.

Finally, you can enter a description of the payment type in the description field. This description will be accessible when a payment is logged so that the payment application will be clear for you and your users.

The 'Example' portion of the page will give you an idea of what this will look like on the Payments tab inside a customer account.

Once you have entered the information for the payment type, click 'Save'.

You also have the option to activate or inactivate payment types. This will determine if they are available when logging a payment. Inactivate a payment type by selecting the X icon to the right of the payment type; this is the off switch. An inactive payment type will show a checkmark instead of an X. To reactivate a payment type, click the checkmark; this is the on switch.

In the screenshot above, the first item is active while the second item is inactive.

### What's Next

You might also be interested in some of the other articles we've written on different aspects of payments. Payments – Intermediate walks you through logging a payment, and it touches on areas like the Payment Information page and Interest Application settings.