Enable the "Increase Overdue Instalments" option for the Dynamic Term Loan with Capitalised Interest under Repayment Collection > Overdue Payments.
The Interest from Arrears needs to be collected in the instalment for the period it was calculated. This is needed to comply with market practice.
To better illustrate the need, imagine the following. The loan itself is only one balance like an account with overdraft. The limit of the overdraft limit reduces periodically by the Principal Expected of the instalments as per the Mambu the schedule.
To mimic that behaviour the Interest from Arrears needs to be collected as per the "Increase Overdue Instalments" option. Otherwise, the "overdraft limit" will not be reducing as required, because the Interest from Arrears will be in the instalment amount reducing the principal portion.