Change in Future Rate Schedule on Base Rate Change
Overview
Prior to Mercury release, the current rate schedule was updated on the floating rate revision date if there is a change in the base index rate. With the Mercury release, if there is a change in the base index rate, the future rate schedule also changes.
Earlier, if the base index rate changes for a loan, only the interest rate corresponding to the rate schedules that are less than or equal to the processing date are affected. If there are any future rate schedules with the same floating rate, those future schedules are not affected. As part of the Mercury release, it is possible to apply the latest index rate to future rate schedules and calculate the amortization schedule accordingly.
Configuration to enable this feature
Go to Setup > Setup > Custom Settings > Org Parameters and click Edit.
Enable the Enable Future Rates flag and click Save.
Example
The following example explains how the future interest rate is changed if there is a change in the base rate.
Two Floating Rate Indexes are created with the following terms and conditions:
Floating Rate Index Rate Percentage Effective From FR1 11% March 1, 2013 FR2 15% June 1, 2013 A contract is created with the following terms and conditions for the preceding lending product and the funds are disbursed:
Loan Amount $10,000 Term 10 Expected Disbursal Date 3/1/2013 Payment Start Date 4/1/2013 Payment Frequency Monthly Flexible Rate On Interest Type Floating Margin Rate on March 1, 2013 2% Margin Rate on May 1, 2013 3% Floating Rate Revision Frequency Daily Current System Date March 1, 2013 The current rate schedule is depicted in the following table:
Floating Rate Index Reference Rate (Floating) Margin Rate Interest Rate Effective From FRI 11% 2% 13% March 1, 2013 FRI 11% 3% 14% May 1, 2013 Add a new rate of 14% to FRI effective from April 1, 2013. On doing this, the rate for the future date is changed to reflect the latest rate present for the floating rate index.
On April 1, 2013, the rate is updated to 16% and on May 1, 2013, the rate is updated to 17% as depicted in the following table:
Floating Rate Index Reference Rate (Floating) Margin Rate Interest Rate Effective From FRI 11% 2% 13% March 1, 2013 FRI 14% 2% 16% April 1, 2013 FRI 14% 3% 17% May 1, 2013