Pay off a Flexible AMZ loan
Overview
Before the Titanium release, if there was an Interest On Arrears configured in a Flexi AMZ loan, the system ignored the IOA component in the final payoff calculation.
Because of this, if a borrower wanted to redeem the loan at any point in time and ask the lender for a redemption statement, the lender would land up in a tricky situation because of the wrong payoff quote getting generated for the loan. Also, because the payoff calculation was ignoring the IOA part, the system would expect a lower payment for the closure of the loan. This would cause interest loss for the lender.
With the Titanium release, this issue has been resolved and the lender can save themselves from incurring any income losses by calculating the payoff amount considering the Interest On Arrears as well.
Payoff Calculation
The payoff amount for a payoff or a payoff quote is calculated using the following formula:
Payoff Amount or Payoff Quote = Principal Remaining – Excess + Interest Remaining + Interest Accrued (Regular) + Interest On Arrears Accrued + Interest On Arrears Remaining.
Example
Let us create a loan with the following terms and conditions:
| Contract Start Date | January 23, 2017 |
| Loan Amount | $10,000 |
| Disbursed | $10,000 |
| IPT Date | February 23, 2017 |
| Interest Rate on Due Principal | 5% |
| Interest Rate on Due Interest | 6% |
| Interest Rate on Due IOA | 7% |
Interest Posting Date
On March 1, 2017: 6 days after IPD, the bill is not paid, the status of the loan is Active - Bad Standing and the Repayment Schedule is generated as follows:
Repayment Schedule
Amortization Schedule
Interest Posting Transactions (IPTs) are generated as follows:
Interest Postings: IOA on Unpaid Principal and Interest
In this case, Interest on Arrears Accrued = IOA on P unpaid + IOA on I unpaid.
IOA on P unpaid = (Principal Posted unpaid * 5% * 6 days) = 961.22 * (5/100) * (6/365) = $0.79. IOA on I unpaid = (Interest Posted on Feb 23 that was unpaid/Interest Remaining * 6% * 6 days) = 84.93 * (6/100) * (6/365) = $0.0838.
Interest On Arrears Accrued = 0.79 + 0.0838 = 0.8738 = $0.87.
Interest On Arrears Accrued
Payoff Quote = Payoff Amount
= Principal Remaining - Excess + Interest Accrued + Interest Remaining + Interest On Arrears Accrued + Interest On Arrears Remaining
= 10,000 - 0 + 14.86 + 84.93 + 0.87 + 0
= $10,100.66.
Payoff Quote
Payoff Amount
The Pay Future Dues Timely flag is not supported during Payoff Quote creation for Flexible AMZ loans and is hence not visible on the Generate New Payoff Quote page. Its value is defaulted to False.
Additional Information:
When, say, an LAD change occurs, then IOA Accrued goes to IOA Remaining, and then when the amount is paid, IOA Remaining goes to IOA Paid.
To have an IOA on IOA in the system, let us cross the next Interest Posting Date (IPD) (March 23) and go to March 25 ( 2 days after IPD). Then the IPTs generated are as follows:
Interest Postings
In this case,
IOA Accrued = IOA on Unpaid Principal Posted for February for 2 days + IOA on Unpaid Principal Posted for March for 2 days + IOA on Unpaid Interest Posted for February for 2 days + IOA on Unpaid Interest Posted for March for 2 days + IOA on Unpaid IOA on P + IOA on Unpaid IOA on I
IOA on Unpaid Principal Posted for February for 2 days = 961.22 * (5/100) * (2/365) = 0.2633 = $0.26
IOA on Unpaid Principal Posted for March for 2 days = 976.81 * (5/100) * (2/365) = 0.2676 = $0.27
IOA on Unpaid Interest Posted for February for 2 days = 84.93 * (6/100) * (2/365) = 0.0279 = $0.03
IOA on Unpaid Interest Posted for March for 2 days = 69.34 * (6/100) * (2/365) = 0.0227 = $0.02
IOA on Unpaid IOA (on Unpaid Principal Posted) for March for 2 days = 3.69 * (7/100) * (2/365) = 0.0014 = $0.00
IOA on Unpaid IOA (on Unpaid Interest) Posted for March for 2 days = 0.39 * (7/100) * (2/365) = $0.00
IOA Accrued = 0.26 + 0.27 + 0.03 + 0.02 + 0.00 + 0.00 = $0.58.
Interest On Arrears Accrued including IOA on IOA
Payoff Tolerance
If the payoff payment amount is within the payoff tolerance limit, the loan goes to Active-Marked for Closure state. Payoff tolerance is the maximum amount that the system can allow to remain unpaid while paying off a loan. This applies to payoff done via the Payoff button and also any regular payment where the amount is at least (payoff - payoff tolerance). If a payment is a payoff, then the last accrual date (LAD) is set to the payoff date.
When a borrower pays off a loan with an amount that is less than the payoff amount but is within the predefined payoff tolerance limit, then the system generates the following two LPTs:
An LPT for the payoff amount.
Another LPT of the type, Closure-Tolerance, with the payment mode as Internal Transfer. This LPT amount is the difference between the amount to be paid (the payoff amount as calculated by the system) and the amount actually paid.