Loan Category Configuration: Open Credit Payment Change Settings

Description

This field is used to activate automated payment changes on open-credit loan types. Check this box if you want the system to automatically calculate loan payments on open credit loans associated with the loan category during daily processing. Otherwise, leave it unchecked.

• For example: if the amount disbursed increased, the system would automatically calculate the new minimum payment.

Place a check mark here if you wish to generate a notice whenever a payment change is calculated for a member loan. Leave the flag unchecked if you do not want notices.

• NOTE: If checked, be sure to include notice event PAYCHG in one of your laser notice forms so that the notices can be printed. (This is the same notice event that is used for payment change notices for interest payment only loans.) SEE ALSO: Member Notices: Configuring and Printing CU-Defined Laser Notices

(If automated payment changes have been activated, this field is required.) Choose one of the following codes to define when payment changes should occur:

Disbursements (D) - Payment change is activated on disbursements only (credit insurance payments are excluded).

Any transaction (A) - Payment change is activated on any transaction, either a payment or a disbursement. (HINT: Since this would cause a new payment to be calculated even when a loan payment is made, it is recommended that that the Print Notices flag be set to Yes for this method.)

Choose one of the following to specify when payment changes should be calculated and recorded on member accounts:

Interactively (I) - To calculate new payment amounts whenever a transaction (either a disbursement only or any transaction, depending on the Change activated on setting) is posted to the member's account.

Daily (D) - To calculate new payment amounts for loans of this category every day during end-of-day processing.

Monthly (M) - To calculate new payment amounts during end-of-day processing on just one day per month. (If this is selected, additional fields will appear and must be completed, described below.)

(Appears only if Monthly (M) is selected in the Process payment changes field.) If payment changes are being calculated on a monthly basis, use this field to choose which balance should be used to determine the new payment amount:

Current (C) - Use the Current Balance on the loan account (as of the end of the month) to calculate the payment amount.

Last disbursed balance (L) - Use the Last Disbursed Balance on the loan account to calculate the payment amount. This would calculate an accurate payment according to how much the member has borrowed, rather than how much is currently owed on the account (if a payment was made after a disbursement was taken during the month).

(Appears only if Monthly (M) is selected in the Process payment changes field.) Enter the day of the month on which monthly payment changes should be calculated. Use 31 if changes should be made on the last day of each calendar month, regardless of the number of days in that month.

Enter the month and year (mmyy) when the next payment change calculation should be performed. This value will advance automatically as each calculation is completed.

• CAUTION: Care should be taken to coordinate this payment change date with the payment due date. For example, let’s say you have a category that is set up to do automated payment changes, occurring monthly on the last day of the month. And let’s say you have loan that has a disbursement taken out on the 2nd of the month, with the next payment date being the 20th of that month. If the next payment date does not get moved out until the last day of the month, the member may be shown as delinquent and accrue fines that the credit union did not intend them to.

This field is used for loans that have a zero balance, to determine the next due date when a new disbursement is made. Enter the number of days to be used in the following calculation:

Next Due Date - Grace period (days) = Calculated Date

If the Calculated Date is less than or equal to today's date, the system will advance the Next Due Date on the loan account one frequency, in effect giving the member a grace period before his or her next payment is due.

If the Calculated Date is greater than today's date, the system will not advance the Next Due Date on the loan account.

• CAUTION: It is not recommended that you use grace if you are coordinating payment changes monthly. For example, let’s say you have a category that is set up to do automated payment changes, occurring monthly on the last day of the month. And let’s say you have loan that has a disbursement taken out on the 2nd of the month, with the next payment date being the 20th of that month. If the next payment date does not get moved out until the last day of the month, the member may be shown as delinquent and accrue fines that the credit union did not intend them to.

(If automated payment changes have been activated, an entry in this field is required.) This field is a rate adjustment tool for LOC and open-end loan types. When a member takes out an LOC loan at a certain rate, part of the loan contract typically allows for the rate on that loan to be adjusted by the credit union at the CU's discretion. This is not a variable rate; rather, the rate can be adjusted as needed to fit market conditions. Adjustments are tied to new money being borrowed: if a member does not borrow any more money, he/she can keep paying off the loan at the original rate.

While the rates themselves are controlled by the variable rate code configuration, this setting controls whether disbursements on these loans should also prompt a new payment amount to be calculated. Check this flag you wish the system to change the payment amount for any loan with an Update type variable rate code upon a disbursement. Otherwise, leave the flag unchecked.

SEE ALSO: Variable Rate Loan Products

Check this if the calculated payment amount should be rounded up to the nearest whole dollar amount. Leave it unchecked if the exact calculated payment should be used.

This feature is used to automatically adjust a member's loan rate every time a payment change is calculated. When a payment change is calculated, the system will evaluate the member's current loan balance and assign the rate according to the balance—the higher the balance, the lower the rate. This feature is used as an incentive to encourage members to use more of their existing lines of credit.

To use Tiered Loan Rates for this loan category, first be sure that the Change activated on field is set to “D” for Disbursements only. Check this flag, then use F14-Tiered Rates to set up the balance tiers and associated rates.

• IMPORTANT: The New payment based on field must be set to “F” for Fixed or “M” for Maturity in order to use the F14-Tiered Rates option. This is because these are the only two calculations that actually use the interest rate when determining the new payment amount.

SEE ALSO: Loan Tiered Rates: Motivating Members to Use that Line of Credit

(If automated payment changes have been activated, this field is required.) Choose one of the following codes to define how the new payment amount should be calculated:

Range (R) - Payment amount is based on a “Balance Range” formula. This method results in less fluctuation in payment amounts. (Also complete the Range Payment Method fields below.)

Variables used in new payment calculation: Balance, Factor, Payment per Factor

Percent (P) - Payment amount is based on a “Percent of Current Balance” formula. (Also complete the Percent Payment Method below.)

Variables used in new payment calculation: Balance and Percentage

Fixed (F) - Payment amount will be calculated by re-amortizing the loan using a fixed term, setting a new maturity date. (Also complete the Fixed Payment Method field below.)

Variables used in new payment calculation: Payments, Rate, and Balance

Maturity (M) - Payment amount will be recalculated by re-amortizing the loan using the Maturity Date on the loan account. (No additional parameters are required.) If additional funds are disbursed, the payment will increase as a result of a new amortization with the existing maturity date.

• NOTE: Since the calculation uses the original maturity date, keep in mind that if funds are disbursed and a payment is recalculated based on a maturity date that is, say, only a month or two away, the payment amount will be essentially the entire balance due on the loan. Also see the Loan Review Dates Overview for examples of how these various features work together. Make sure your staff understands what account maintenance is appropriate on these accounts to keep your payments calculated the way you want.

Variables used in new payment calculation: Maturity Date, Payment Frequency, Rate, Balance

Table (T) - Payment amount is based on a loan's balance range, using either a fixed payment amount, or re-amortizing using a fixed term. If this code is selected, when Enter is used to save the changes, a Payment Change Table window will appear to allow you to configure these ranges.

Variables used in new payment calculation: Term set by Balance Range, Balance, Rate

Fixed Payment Method

The following fields are used when Fixed payment method is selected.

If “Fixed” was selected in the New payment based on field, use this field to enter number of montly payments on which the loan payment will be calculated by a new amortization. This causes a new maturity date to be calculated on the loan.

• For example, if you enter “24” here, the loan payment will always be based on a 24-month term. If additional funds are disbursed, the payment will go up, but the term will remain at 24 months.

• IMPORTANT: In order for this to work, the loan itself must be set up with a monthly payment frequency. Using another frequency will cause the new payment amount to be calculated incorrectly, as it always assumes a # of months.

If “Fixed” was selected in the New payment based on field, this flag lets you specify what method should be used to calculate a new payment amount whenever variable rate changes are applied to the loan. Remember that this method works only on loans with a payment frequency of monthly.

If checked, the system will calculate the new payment by re-amortizing the loan starting with the Last disbursement date on the loan account (the last time a disbursement was made). This would be the same as if using the “Maturity date fixed” calculation method, and the payment will be recalculated so that the loan would pay off as of the original maturity date. Use this if you want to change the maturity date when the member takes a disbursement (or maybe any transaction, depending on the setting of the Change activated on flag above), but not when the rate changes.

If unchecked, the system will calculate the new payment by re-amortizing the loan starting with the date on which the rate actually changed (the current date as of the variable rate change). With this method, the maturity date will be changed both when the member takes a disbursement and when the rate changes.

Example:

A 24-month loan is opened on June 1, 2005. The system calculates a payment amount to enable the loan to be paid off by June 1, 2007. On December 1, a variable rate change occurs, causing a new payment to be calculated.

If this flag is turned on, the system will re-amortize the loan to determine a payment that will still allow the loan to be paid off by June 1, 2007 (no change to the maturity date).

If the flag was turned off, the system would re-amortize the loan for a full 24 months, moving the maturity date out to December 1, 2007.

Percent Payment Method

The following field is used for Percent Payment Method

If “Percent” was selected in the New payment based on field, use this to provide the variable needed to complete the Percent of Current Balance formula calculation:

current bal ´ pay percent of the balance amt = new payment amt

In the following example, the percentage is set to 5%:
 $5,745 ´ 5% = $287.80

Range Payment Method

The following field is used for a Range Payment Method

If “Range” was selected in the New payment based on field, use these fields to provide the variables needed to complete the Balance Range formula calculation:

(current bal ¸ division factor) ´ pay per factor amt = new pmt amt

The result of the (current bal ¸ division factor) portion of the calculation is always rounded up to the nearest whole number.

In the following example, the loan balance is $5,756, the division factor is $100 and the pay per factor amount is set to $3:

 ($5,756 / $100) = $57.56 (will be rounded up to $58)
 $58 ´ $3 = $174.00

Required for all Payment Methods except if “Use tiered rates…” is selected above.

Enter the minimum payment amount for line-of-credit loans associated with this loan category. Whenever this amount is greater than the system calculated amount, this will be used instead as the new payment amount on the loan (unless the total loan balance is below this amount, in which case the loan balance is used as the payment amount).

• This setting is not used if Use Tiered Rates in payment recalculation is checked. Instead, the minimum payment amount is taken from the Tiered Rates configuration window (F14-Tiered Rates).