Redraw

What is Redraw?

With the Platinum release, Q2 Loan Servicing allows you to take out any extra repayments that you have made over the required minimum repayments on your loan resulting in a change in the principal amount without changing the repayment schedule. This is called redrawing. 

Why is it Required?

Essentially what this means is that you can redraw an amount that is a difference between the Loan Balance that would have been before the extra repayment and the Loan Balance after the repayment, so that when you redraw this amount, the loan goes back to the state that it would have been without the extra repayment ensuring that the re-borrowing (redraw) is not more than what the borrower can reasonably pay back within the original loan term. This is the significance of the Reserve Amount for Next Due field, which is telling you that you cannot redraw more than a certain amount. If you are allowed to redraw more, then the Loan Balance would increase more than what it originally would have been, shooting up the monthly repayments.

How to Enable the Redraw Feature?

Enable Redraw Feature in the Org

You can enable the redraw feature in your org by enabling the Redraw flag in Custom Settings > Enable Loan Features.

Enable Redraw Feature in your Loan Contract

You can also make your loan contract redrawable or nonredrawable by enabling or disabling the Redraw Enabled flag in the Additional Parameters section of CL Contracts. 

What it Is and What it is Not?

A redraw is not redrawing from an extra amount like a deposit or a savings account, but it is redrawing from the loan itself. If a loan is redrawable, it means that the extra payment that you make is applied to the loan resulting in a decrease in the principal amount and an intact repayment schedule. This extra payment is the maximum redrawable balance that you can redraw and is tracked in a field called Reserve Amount for Next Due.

What are the UI Enhancements made in Q2 Loan Servicing for Redraw?

This section lists the user interface enhancements made in various releases.

How is the Redraw Action Implemented in Q2 Loan Servicing?

In Q2 Loan Servicing, the redraw action is implemented with the help of the Principal Adjustment as redrawing changes the principal. To be able to use Principal Adjustment for redraw, you need to enable the Redraw flag while doing a Principal Adjustment.

In the Q2 Loan Servicing system, you can redraw using the UI and the API.

Redraw using the UI

To redraw, go to the Loan Quick Menu > Loan Actions > Principal Adjustment.

Redraw using the API

To perform a redraw, you can use the following redrawAmount API where you can pass the loan ID, transaction date, the redraw amount, and other additional details such as the bank account, payment mode, and more:

global virtual Loan_Account__c redrawAmount(Id loanId, Date transactionDate, 
Decimal transactionAmount, String reference, String bankAccount, String paymentMode)

Can you Reverse the Redraw and How?

Yes, you can reverse the redraw. You can reverse the redraw on the UI or using an API.

Redraw Reversal using the UI

To reverse the Redraw, go to the OLT of the Transaction Type Principal Adjustment - Redraw and then click Redraw Reversal in the drop-down menu list.

Redraw Reversal using the API

To perform a reversal of the redraw, you can use the following reverseRedraw API where you can pass the ID of the OLT record of the redraw action for which the reversal has to be performed:

global virtual void reverseRedraw(Id redrawOLTId)

After the Redraw Reversal

After the reversal of redraw: 

• The Principal Remaining goes back to the previous amount.

• Reserve Amount Not Due goes back to the previous amount.

• Last Transaction Type changes back to the previous transaction type.

• The corresponding LDT and DDTs are marked reversed.

• Another OLT will be created of Transaction Type, Principal Adjustment - Redraw Reversal.

• The Loan Transaction Statement is updated with the addition of the OLT created for reversal of redraw.

What is Redraw Balance Reduction or Limit Reduction?

Redraw balance reduction enables lenders to reduce the maximum redrawable limit on a redrawable loan. It enables you to reduce the Reserve Amount Not Due that a borrower can redraw without changing the principal of the loan. Redraw balance reduction is introduced to achieve a change in the EMI amount of a redrawable loan. It does not change the LAD of the loan. However, it is considered as one of the events in the event reversals.

In the Q2 Loan Servicing system, a redraw balance reduction can be achieved using the UI and the API. On performing a redraw balance reduction, an OLT is generated.

Redraw Balance Reduction using the UI

To reduce the redraw balance, go to the Loan Quick Menu > Loan Actions > Redraw Balance Reduction.

Redraw Balance Reduction using the API

To perform a redraw balance reduction, you can use the following redrawBalanceReduction API where you can pass the ID of contract on which Redraw Balance Reduction has to be done:

global virtual void redrawBalanceReduction(Id loanId, Date transactionDate, 
Decimal transactionAmount)

After the Redraw Balance Reduction Action

After the Redraw Balance Reduction Action:

• Reserve Amount for Next Due = $100 - $60 = $40. 

• Principal Remaining = $10,000.Principal Remaining is not affected by a redraw balance reduction.

• AN OLT of $60 is generated.

• The Loan Transaction Statement updates with the redraw balance reduction transaction of $60.

• New schedules are generated on the sum of the Loan Balance and the new Reserve Amount Not Due.

• Reversals of the redraw balance reduction restore the earlier Reserve Amount Not Due and the earlier schedules.

Can you reverse a Redraw Balance Reduction and How?

Yes, you can reverse a redraw balance reduction action by using the UI and API.

Redraw Balance Reduction Reversal using the UI

To reverse the redraw balance reduction, go to the Transactions > Other(s) > OLT of Transaction Type, Redraw Balance Reduction Reversal.

Redraw Balance Reduction Reversal using the API

To perform a redraw balance reduction reversal, you can use the following reverseRedrawBalanceReduction API where you can pass the ID of the OLT record of the redraw reduction action for which the reversal has to be performed.:

global virtual void reverseRedrawBalanceReduction(Id redrawBalanceReductionId)

What is Top-Up in Q2 Loan Servicing?

Top-up is a financial option on redraw loans that enables lenders to provide additional disbursement. It increases the principal amount of the loan.

Whenever a loan is topped up, the loan gets re-amortized on the new loan limit. The new Loan limit after top-up is the sum of the existing loan balance, redraw balance, and the top-up amount. 

As part of the top-up action, you can also capture all the information that you capture during disbursement, such as bank account details, payment mode

The top-up action results in the Principal Remaining increasing to the extent of the amount getting topped up. 

The top-up action does not have any impact on the redraw balance. 

A top-up in the Q2 Loan Servicing can be achieved by using the Principal Adjustment - Add functionality. Because of the top-up, the schedules are regenerated on the following balance:

Top up amount + minimum of ( (Loan Balance + Redraw Amount), (Schedule Balance) ).

You can perform Top-Up action by using the UI and API.

Top-Up using UI

To do a top-up, go to the Loan Quick Menu > Loan Actions > Principal Adjustment.

Top-Up using API

To perform a top-up, you can use the following Principal Adjustment API that is modified to pass other Additional Details like Bank Account, Payment Mode, and more:

global virtual Loan_Account__c adjustPrincipal(Id loanId, Date transactionDate, 
Decimal transactionAmount, String reference, String bankAccount, String paymentMode)

Can you Reverse a Top-Up and How?

Reversal of a top-up restores the schedules. You can reverse a top-up using the UI and API.

Top-Up Reversal using UI

To reverse the top-up action, go to the Transactions > Other(s) > OLT of Transaction Type, PrincipalAdjustment-Add, and then click Reverse Principal Adjustment.

Top-Up Reversal using API

To reverse a top-up, you can use the following Principal Adjustment Reversal where you need to pass the ID of the OLT created because of Principal Adjustment top-up action:

global virtual void reversePrincipalAdjustment(Id princAdjOLTId)

For more information on the APIs, see the AbstractLoanActions class section in 
the Global Methods guide.

Example: Redraw in Q2 Loan Servicing

To understand how redraw works in Q2 Loan Servicing, let us look at an example with various actions that can be performed in a redrawable loan.

Prerequisites

Before using the redraw feature in Q2 Loan Servicing, ensure that the following prerequisites are met:

• Enable the Custom Settings > Enable Loan Features > Redraw flag.

  • This enables the usage of the redraw feature in the org.

    Note:

    For more information on Enable Loan Features, see the Enable Loan Features section in the Q2 Loan Servicing Administration Guide.

• Enable the Redraw Enabled flag in Additional Parameters of your loan contract.

  • This enables the loan contract to be redrawable by enabling the visibility of the Redraw flag in the Principal Adjustment page to perform a redraw.

  • The extra payment does not cause rescheduling of the loan (even when Excess Threshold% for Reschedule is non zero), and thus the Reschedule Status remains blank and does not change to Pending.

The Redraw Action

Let us perform the following steps to understand redraw:

1. Let us say that we create a loan with the Loan Amount of $10,000.

2. Let us make a payment of $100 before the first due date. This results in the following:

   • Reserve Amount for Next Due = $100.

   • Principal Remaining = $10,000 - $100 = $9900.

     Reserve Amount for Next Due/Redraw Balance

   • The amortization schedule remains unchanged.

3. Let us redraw $50. To redraw, click Loan Quick Menu > Loan Actions > Principal Adjustment.

   Principal Adjustment

4. Provide the details as specified in the following table:

   Note:

   You can refer to the image as an example.

   Field	Action and Information
   Transaction Date	Specify the date on which you want to perform the redraw.
   Transaction Amount	Specify the amount to redraw. In this example, it is $50.
   Bank Account	Provide the bank account for the principal adjustment.
   Payment Mode	Provide the mode of payment such as Cash, Check, and ACH.
   Redraw	Select this check box to enable this principal adjustment to be a redraw.

   Redraw $50

   Note:

   When Principal Adjustment is done without enabling the Redraw flag, the loan gets rescheduled and the Transaction Amount $50 is not taken from Reserve Amount Not Due.This redraw results in the following:

   • Reserve Amount for Next Due = $100 - $50 = $50. This means that the redraw amount is taken from the Reserve Amount for Next Due.

   • Principal Remaining = $9900 + $50 = $9950.

     Principal Remaining

   • Last Transaction Type gets updated to Principal Adjustment - Redraw.

   • Since the principal has increased, an LDT gets created of Disbursal Type, Principal Adjustment - Redraw.

     LDT and DTD

   • An OLT of Transaction Amount $50 is created. This OLT is of the type Transaction Type; Principal Adjustment - Redraw.

     OLT

   • LDT is created with the Transaction Amount $50.

     LDT

   • Preceding transactions are added to the Loan Transaction Statement.

     Loan Transaction Statement

   • The amortization schedule remains unchanged.

     Amortization Schedule

The Reversal of the Redraw Action

To reverse a redraw:

1. Go to Transactions > Other(s), click the OLT of the type Principal Adjustment - Redraw.

   Other Loan Transactions: Redraw Reversal

2. On the Other Loan Transaction page, in the menu ribbon, click the drop-down arrow, and then select Redraw Reversal.

   Redraw Reversal Button

   Note:

   If you do not see the Redraw Reversal button, you need to add it in Setup > Object Manager > Other Loan Transaction > Redraw > Page Layout > Buttons.

3. Click Confirm.This reverses the redraw of $50 and creates another OLT of the TRANSACTION TYPE Principal Adjustment - Redraw Reversal.

After the reversal of redraw: 

• The Principal Remaining goes back to $9900.

• Reserve Amount Not Due goes back to $100.

  After Redraw Reversal: Principal Remaining & Reserve Amount Not Due

• Last Transaction Type changes back to Payment Transaction.

  After Redraw Reversal: Last Transaction Type

• LDT is marked reversed.

  After Redraw Reversal: LDT Reversed

• An OLT is created of Transaction Type, Principal Adjustment - Redraw Reversal.

  OLT: Principal Adjustment - Redraw Reversal

• The Loan Transaction Statement is updated with the addition of the OLT created for reversal of redraw with Transaction Name as Disbursal Reversal.

  Loan Transaction Statement: Disbursal Reversal

The Redraw Balance Reduction Action (Limit Reduction)

To reduce the redraw balance:

1. Go to Loan Quick Menu > Loan Actions > Redraw Balance Reduction.

   Loan Quick Menu > Loan Actions > Redraw Balance Reduction

2. Continuing with the preceding example with a Reserve Amount Not Due of $100, say a redraw balance reduction of $60 is made, and then click Save.

   Redraw Balance Reduction Transaction

This results in the following:

• Reserve Amount for Next Due = $100 - $60 = $40. 

• Principal Remaining = $9900.Principal Remaining is not affected by a redraw balance reduction.

  After Redraw Balance Reduction: Principal Remaining & Reserve Amount for Next Due

• An OLT of type Redraw Balance Reduction and amount $60 is generated.

  Redraw Balance Reduction OLT

  OLT Transaction Type: Redraw Balance Reduction

• The Loan Transaction Statement updates with the redraw balance reduction transaction of $60.

  After Redraw Balance Reduction: Loan Transaction Statement

• New schedules are generated on the sum of the Loan Balance and the new Reserve Amount Not Due.

  Repayment Schedules

The Redraw Balance Reduction Reversal Action (Limit Reduction Reversal)

To reverse the Redraw Balance Reduction:

1. Go to Transactions > Other(s) > OLT of type Redraw Balance Reduction.

   OLT of Type Redraw Balance Reduction

2. On the Other Loan Transaction page, in the ribbon, click the drop-down arrow and then click Redraw Balance Reduction Reversal.

   Redraw Balance Reduction Button

3. Click Confirm.

   Confirm Redraw Balance Reduction Reversal

4. Click Cancel to close this page and go back to the Other Loan Transaction page.

   

Reversals of the redraw balance reduction restore the earlier Reserve Amount Not Due and the earlier schedules.

After reversal:

• Reserve Amount for Next Due = $100.

• Principal Remaining = $9900.Since Principal Remaining is not affected by a redraw balance reduction, the reversal does not affect the Principal Remaining.

  After Redraw Balance Reduction Reversal

• An OLT of type Redraw Balance Reduction is created.

  Redraw Balance Reduction Reversal OLT

• The Loan Transaction Statement updates with the Redraw Balance Reduction Transaction of Transaction Amount $60.

  Loan Transaction Statement

• Amz schedules are generated on the sum of the Loan Balance and the new Reserve Amount Not Due.

  After Reversal: Amortization Schedule

The Top-Up Action

To top up a redrawable loan:

1. Go to Loan Quick Menu > Loan Actions > Principal Adjustment.

   Loan Quick Menu > Loan Actions > Principal Adjustment

2. Continuing with the preceding example with a Reserve Amount Not Due of $100, let us do a top-up of $20, and then click Validate and Save.

   Top Up: Principal Adjustment - Add

After top-up:

• • Reserve Amount for Next Due = $100.

  • Principal Adjustment - Add = $20.

  • Principal Remaining = $9900 + $20 = $9920.

    After Top Up

  • A transaction of type PrincipalAdjustment-Add is created in Other Loan Transactions.

    Other Loan Transactions(OLT) with PrincipalAdjustment-Add Transaction Type

  • LDT is updated with the transaction details.

    Loan Disbursal Transaction (LDT) with Top Up Transaction

  • The Loan Transaction Statement gets updated with the addition of another Transaction Name, Principal Adjustment - Add.

    Loan Transaction Statement with Principal Adjustment - Add Transaction

  • New schedules are generated on the following: Top up amount + minimum of ( (Loan Balance + Redraw Amount), (Schedule Balance) )

    New Repayment Schedules Generated

The Top-Up Reversal Action

To reverse a redraw:

1. Go to Transactions > Other(s), click the OLT of the type PrincipalAdjustment-Add.

   PrincipalAdjustment-Add Type OLT

2. Click Reverse Principal Adjustment.

   Reverse Principal Adjustment

3. Click Confirm.

   Confirm Top-Up Reversal

After reversal:

• Reserve Amount for Next Due remains $100.

• Principal Remaining reversed back to $9900.

  After Top-Up Reversal: Principal Remaining & Reserve Amount for Next Due

• An OLT of type PrincipalAdjustment-Add Reversal gets created.

  OLT of Type PrincipalAdjustment-Add Reversal

• LDT is marked reversed.

  LDT Reversed

• Repayment Schedule reverses.

  Repayment Schedule Reversed

The Rescheduling Action

Automatic and manual rescheduling of a redrawable loan is done on the sum of Loan Balance and Reserve Amount Not Due (Redraw Balance).

Internally, the system reschedules the loan on the following amount: Minimum of (Schedule Balance and (Loan Balance + Reserve Amount Not Due))

Loan Transaction Statement

The updated Reserve Amount Not Due of the loan is automatically captured in the Loan Transaction Statement after every transaction.

Comparison of Redraw, Top-Up, and Redraw Balance Reduction

To summarize the redraw, top-up, and redraw balance reduction actions in a redrawable loan, let us compare them as illustrated in the following table:

Effect of Actions Taken in a Redrawable Loan

Let us understand how actions that are taken in a redrawable loan affect various functions or parameters: