Some leases, most often vehicle leases, are designed with a rent amount that changes each period (usually monthly). The initial principal amount is divided evenly over the life of the lease, and interest on the remaining principal is calculated each month, sometimes with an extra fixed management fee and/or executory costs.

To generate level principal amortization rent payments, select the Lease menu, Level Principal Rent. A new screen pops up to enter the details. Enter the initial principal amount (the default is the fair value of building/equipment, if entered), the interest rate (as a yearly percentage), and any fixed fee and executory costs. If the payment frequency is not monthly, select the proper period length. The principal can be amortized either equally over the life of the lease, or based on a particular percentage rate. If you have entered a guaranteed or unguaranteed residual, the principal is amortized down to that amount. “Round rent components” determines whether the principal and interest components are rounded before (checked) or after (unchecked) they are added together, to match what your lessor does.

If a lease starts with a fractional month (or other payment period, if you choose a payment frequency other than monthly), the first fractional period is assumed to be treated as interest-only for purposes of calculating the rent. Any extra fixed fee or executory cost is prorated.

If you amortize the principal based on a percentage rate and the rate does not exactly divide into an equal number of months (such as a 3% rate, which covers 33.33 months), your term should continue for the additional month, and a reduced rent is calculated for the final month. If the lease term is not consistent with the rate, EZLease will not calculate level principal rent.

All existing rent steps for a lease are deleted and replaced when you choose this option.

Please note that if the lease is finance, the liability payment calculated by EZLease may be different from the principal payment used to determine the rents. Many lessors, when calculating rents, use a methodology not consistent with FAS 13; in particular, their calculation typically includes an interest component in the first month, which is not consistent with FAS 13 for leases paid in advance. Also, the FAS 13 discount rate may not be the same as the rate the lessor uses (particularly if extra fees are charged beyond the basic principal and interest). For ASC 842/IFRS 16/GASB 87, the discount rate used is the lessee's incremental borrowing rate unless the lessor's implicit rate is known, and knowing that requires knowing the lessor's initial direct costs and unguaranteed residual, which is often information not available to the lessee.

Some lease contracts with level principal amortization call for the interest to be variable over the life of the lease, based on an external rate such as LIBOR. In such cases, the lease should be set up using the rate in effect at lease inception; rent changes (positive or negative) due to future changes in the rate are considered variable lease payments, and should not result in revisions to the base rent. Instead, the difference between scheduled and actual rent should be entered (positive or negative) on the Variable tab, or uploaded using File / Variable Lease Payments Upload.