Delay Change In Payment Due To Rate Change

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Delay Change In Payment Due To Rate Change

Overview

To prevent the borrowers from being adversely affected by the rate change immediately and to give them time to prepare, the system allows them to specify the amount of time after which they would like it to change the payment amount as an impact of a rate change.

Note:

For more information on change in payment amount, see Change the Payment Amount.

Key Concepts

  • This feature is applicable only in the following scenarios:

    • When the interest rates are increased

    • When the Interest Rate Change Method is set to Change the Payment Amount while creating a Lending Product or a loan Contract.

  • You can delay the change in payment when the interest rate is changed due to the following reasons:

    • Interest rate is changed using the Loan Quick Menu > Loan Actions > Rate Change page.

    • Interest rate is changed due to Floating Rate Index change.

    • Interest is changed due to manually rescheduling a loan using API.

    • Interest is changed due to manually rescheduling a loan using the Reschedule a loan page.

  • The feature considers the holiday schedule and business hours before changing the payment amount.

How do you delay the change in payment?

To delay the change in payment:

  1. Log in to your Salesforce account.

  2. Click Lending Product and create a lending product or go to your existing lending product.

  3. Ensure the following:

    • Interest Rate Change Method is set to Change the Payment Amount.

    • Interest rate is increasing while it is getting changed.

  4. In the existing lending product or after creating a lending product, click Edit Additional Parameters.

  5. Provide the details related to delaying change in payment as explained in the following table, and then click Save:

    Field Name Action and Description
    Days to Payment Amount Change Specify the number of days after which the system can change the payment amount due to the change in the rate reschedule.
    Enable Delay for Manual Rate Change Select this if you require the delay in payment change even when the rate is manually changed.

  6. You can also override the values at the contract level while creating a contract. While creating a loan contract, in the Additional Parameters, provide the preceding values and then click Save.

  7. After creating a contract, and before disbursing, you can override these values by providing new values by clicking Edit Additional Parameters, and then click Save.

How can you override the product determined number of schedules and customize?

Custom class for Fixed Schedules field of the Custom Hooks object is a newly added field which determines the amortization schedule of a loan. If you need a different logic for the amortization schedule that is, say, not based on days but based on a different parameter, then you can add that customization by defining your class in this field.

For example, let us say, instead of days, you need the schedule to not change for a particular number of terms (instead of number of days). Using this customization, if the number of terms is selected as two, then after the rate changes, the amortization schedule will be constant for another two billing cycles and then it changes according to the new rate. If the number of terms in custom hook is selected as zero, then the amortization schedule changes immediately after the rate changes.

Steps

To achieve customization, the following steps need to be carried out:

  1. Create a custom class and implement the methods from AbstractCustomOptionForFixedSchedule class, and write the logic within the getCustomNumberOfFixedSchedules method.

  2. Specify the created class name in the Custom Settings > Org Parameters (for loan) > Custom class for Fixed Schedules field.

Impact on Interest Only term loans

Delaying the change in payment has no impact on Interest Only term loans. If there is any Interest Only term, then the payment amount increases as there is no principal balance.

Example: Payment amount after a rate change in FRI

Let us say there is a loan with the following conditions:

  • There is a flexible Repayment plan for the bill within this period of 35 days

  • Interest type = Floating

  • Interest Rate Change Method = Change Payment Amount

  • Is Interest Posting = true

  • Interest Posting Frequency = Monthly

  • Enable Delay For Manual Rate Change = false

  • Days to Payment Amount Change = 35

  • Floating Rate Revision Frequency = Monthly

  • Floating Rate Index (FRI) details:

    • March 1, 2013 to March 31, 2013 = 12%

    • April 1, 2013 to April 30, 2013 = 15%

  • SOD = March 1, 2013

  • Loan Amount = $10,000

  • Payment Term = 10

  • Contract Date = March 1, 2013

  • Payment Start Date = April 1, 2013

  • Payment Frequency = Monthly

  • Flexible Repayment Plan with following details:

    • Payment Type = Interest Only, Number Of Payments = 1

    • Payment Type = Equal Monthly Installments, Payment Amount = $900 and Number of Payments = 1

Let us disburse this loan with Transaction Amount = 10000 (Current Payment Amount = 100).

Let us move the system date to April 1, 2013. The rate changes to 15% as per the FRI, but as Days to Payment Amount Change = 35, the system would not change the payment amount for the next 35 days and hence it is observed that the Current Payment Amount for May 1, 2013, schedule is not changed and it remains as $900.

Note:

The same preceding behavior exists in case of a manual rate change too when the Enable Delay For Manual Rate Change flag is enabled.

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