Begin with the original loan terms
Record the original principal, start date, interest rate, and the interest calculation method required by the loan documents. A reconciliation is only as reliable as the starting terms.
Enter transactions in date order
Each actual event should be recorded on the date it occurred: regular payments, partial payments, principal-only payments, advances, fees, and rate changes. Interest is then calculated from one transaction date to the next under the selected method.
Show how each payment was applied
A useful reconciliation report should make the allocation visible. For each transaction, show accrued interest, the amount applied to interest, the amount applied to principal, any fees, and the resulting balance. This creates an audit trail instead of only producing a final number.
Do not force irregular history back into a normal schedule
Once a loan has materially departed from the original schedule, simply marking payments as paid on the old amortization table can hide timing effects. A transaction-by-transaction reconstruction is usually clearer because it reflects what actually occurred.
Use software when the calculation becomes repetitive
Reconstruct irregular loan histories transaction by transaction and calculate a payoff through a selected date.