Financial Intelligence

September 3, 2019

Principal-Deferred Advance

The Principal-Deferred Advance (PDA) is a hybrid advance product that combines elements of the Fixed-Rate Advance and the Amortizing Advance. With the PDA, principal payments are deferred for a predetermined period, while the interest rate is locked in for the life of the advance. It begins as a Fixed-Rate Advance, allowing members to choose a specific amount of time they would like to defer the principal payment of the advance, up to 5 years. When the lockout, or principal-deferred period ends, the advance becomes an Amortizing Advance, where the member makes principal and interest payments on the loan up to another 30 years. This structure can be used to match or pool fund a variety of loan programs, including interest-only-to-amortizing residential loans and construction-to-permanent loans.

PDA Structure:

With this advance, members can enjoy the benefits of both the Fixed-Rate and Amortizing Advances. The PDA was designed to help members manage through an uncertain interest-rate environment with the added smoothness of an integrated advance that combines an interest-only structure for the beginning of the loan and a customizable amortizing backend, all at a rate that remains unchanged for the life of the advance.

PDA Features:

• Rate: fixed over the life of the advance
• Day Count Basis: 30/360
• Initial Payment Frequency: monthly on the funding date
• Term: 1-30 years after principal-deferred period
• Maximum Principal-Deferred Period: 5 years
• Maximum Settlement: 12 months out
• Prepayable: yes

PDA Benefits:

• Valuable asset/liability management tool
• Fully amortizing backend with a choice of varying balloon terms
• Mirrors characteristics of a typical construction deal with a permanent take-out
• No embedded options in the advance

Best used for:

• Members who match fund construction-to-permanent loans
• Members who want to pre-fund a branch
• Liquidity

For more information on how our Principal-Deferred Advance can help meet your institution’s funding needs, contact a Relationship Manager at (212) 441-6700.

Note: Advances may be collateralized with eligible mortgages or securities identified in the Member Products Guide.

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