Variable Rate Loans and Rate Lock

Financial institutions have loan and lease products that have their pricing driven by a variable rate index. Variable rate loans are loans with interest rates linked to an index that is revised periodically.

The Hydrogen release of Q2 Origination offers the following features:

•  A new pricing method called Rate Schedule is introduced, using which interest rates can be configured to differ over the defined loan term period. 
  The rate card configurations are linked to the variable rate, and multiple pricing offers can be generated and displayed along with the payment amount for effective comparison. 

• The user margin can be overridden.

• The rate of interest can be locked for a defined term.

After an offer is selected from the multiple pricing offers, the selected pricing offer is linked to the newly introduced pricing method called Rate Schedule. The borrower can specify the Rate Floor, Rate Ceiling, and Rate Revision Frequency. Multiple indices can be associated with a rate card detail. 

To avoid increased interest rates or fluctuations, financial institutions offer Rate Lock when a loan application is linked to a variable rate index. Rate lock validity might start from the closing date or the disbursement date of the loan application, based on the practices of the financial institutions. Rate Lock applies only to the Rate Schedule pricing method on an application. 

Workflow

The following image illustrates the workflow to configure a Rate card configuration with Variable Rate Index on an application:

Pricing Recommendation

Configure Rate Card with Variable Rate Index

Prerequisites

Before you proceed to configure a rate card with a variable rate index, ensure that the following prerequisites are met:

• The Floating rate index setup is configured.

• The rate card is configured.

• The floating rate index is set up.

• The rate card details are associated with an index.

• The pricing is generated using a rate card.

Steps

To configure a rate card with a variable rate index:

1. Log in to your Salesforce account. 
   

2. Go to  (App Launcher) > Q2 Origination.
   

3. On the Applicationstab, select the required Application ID. 
   

4. Go to Pricing > Interest. 
   

5. In the Recommendations section, from the list of configured rate cards, select Recommended Offers.
   

   Note:

   You can also define a period to avoid charges on any interest to the borrowers. This is achieved by creating a row with an interest rate of zero in the rate schedule.
   

   
   
   

   Note:

   As depicted in the preceding image, the Select here to view details button only appears when the Pricing Method is Rate Schedule.

6. To display the details, select Select here to view details.
   

   The following Rate Schedule window pops up:
   
   

7. To select a particular Rate Card, select that Rate Card from the configured pricing recommended offers.
   

8. Select Yes to confirm the selected offer. 
   

   

   The selected pricing offer is highlighted in the RECOMMENDED OFFERS by the system and is displayed in the Selected Offers tab as depicted in the following image:

   

9.  To configure the interest rates to differ over the loan term and link them to an index, specify the following additional details:
   

   Note:

   This can be achieved if the offer selected is linked to the rate schedule. 
   

   Field Name	Action and Information
   Rate Floor	Rate Floor, is the minimum rate that must be applied to the Loan. In a variable rate loan, where the linked index rate changes based on the market index, the loan will not go below this defined Rate Floor.
   Rate Ceiling	Rate Ceiling is the maximum rate that must be applied to the Loan. In a variable rate loan, where the linked index rate changes based on the market index, the loan will not go above this defined Rate Ceiling.
   Rate Revision Frequency	This defines the frequency at which the index needs to be revised on the loan contract.

   Note:

   The variable rate should not be below the floor rate and not above the ceiling rate. 
   

10. To enable the Rate Lock option, select the Rate Lock checkbox, and provide the following details as shown in the following image:

    
    

    Field Name	Action and Information
    Rate Lock	An agreement between the borrower and the lender to lock the rate as of the current date to get the benefit of the variations in the index rate.
    Rate Lock Date	The date on which the borrower opts for a Rate Lock.
    Rate Lock Period (in months)	The period for which the locked rate applies to the loan contract. The Rate Lock Period should be less than the term of the contract.
    Rate Lock Validity Period (in Days)	The number of days within which the signed loan contract with the applied Rate Lock is valid. The loan application is to be signed within the Rate Lock Validity period to avoid the withdrawal of this facility.