Variable Rates

Lending Lending Variable Rates

This document provides technical guidance on configuring and managing variable rates for loans within the FLEX system. Effective management of variable rates involves setting up Variable Rate Group Codes, configuring loan types, managing individual loan extensions, and executing rate change processes.

1. Overview of Variable Rates

Variable rates in FLEX are managed through a hierarchical structure:

  • Variable Rate Group Code: Defines default parameters for a variable rate product. This code can be embedded into one or more loan types.
  • Loan Type Configuration: Associates a Variable Rate Group Code with specific loan types, applying the default parameters to new loans of that type.
  • Individual Loan Record: Allows for customization of variable rate parameters for specific loans, overriding the group code defaults if needed.

2. Key Steps for Variable Rate Setup

To implement variable rates in FLEX, follow these steps:

  1. Set up Variable Rate Group Code: Configure the group code using the “Variable Rate Group Configuration” utility.
  2. Input Group Code into Loan Types: Embed the created group code into relevant loan types via “Loan Type Configuration.”
  3. Set up Variable Rate Extension (Individual Loan): When adding a new loan to an existing account, the system will guide you through setting up a Variable Rate Extension if configured.
  4. Run Rate Change Program: Execute the program to apply rate changes on or after the designated rate change date.

3. Variable Rate Group Configuration

This section details the setup of Variable Rate Group Codes, which define the default behavior for variable rate loans.

3.1 Accessing Variable Rate Group Configuration

Navigate to: Loans > Variable Rate Loans > Variable Rate Group Configuration from the FLEX Main Menu.

3.2 Managing Group Codes

  • View Existing Codes: The screen displays all currently configured variable rate group codes.
  • Edit Existing Code: Highlight a code and click Edit.
  • Create New Code: Click Add.
  • View Loan Statistics: Click Loan Statistics to see counts and totals for all loans.
    • A blank Group indicates loans without an embedded variable/fixed rate loan code.
    • F typically represents fixed-rate loans (unless redefined by the credit union).
    • Other codes generally represent variable rate group codes.

3.3 Rate Group Maintenance (Add/Edit Screen)

This screen allows you to define the parameters for a Variable Rate Group.

3.3.1 Group Information

  • Group: Enter the unique group code.
  • Description: Provide a descriptive name for the group.
  • Maintain During Loan Entry:
    • Purpose: Determines if the variable rate extension record can be added/edited during individual loan processing.
    • Recommendation: FLEX recommends enabling this field to ensure variable rate extension setup is not overlooked. If the extension record is not created, the loan will not receive rate changes.

3.3.2 Rate Information (Default Values)

  • Note: All fields in this section and “Rate Changes” serve as default values for the group. These can be overridden on individual loan records.
  • Tied to Index:
    • Purpose: Indicates if the rate will be linked to an external index.
    • Impact: If checked, a “Current Index Code” can be assigned, and margins (up or down) will be available in the variable rate extension on a loan record.
  • Current Index Code:
    • Availability: Displays only if “Tied To Index” is checked.
    • Selection: Choose an index code from the dropdown. Index codes must be created via “Index Maintenance” first.
  • Current Index Default:
    • Indexed: If an index code is selected, the current rate tied to that index will display.
    • Non-Indexed: If “Tied To Index” is not checked, a default rate can be manually entered.
  • Round Rate Up To: Enter a value if the rate should be rounded up during a variable rate change.
  • Change On: Select the specific timing for rate changes (e.g., “First day of month”).
  • Rate Change Frequency: Select the frequency of rate changes from the dropdown (e.g., “Quarterly”).
  • Days Before Notify: If a rate change notice is required, enter the number of days before the change due date to send the notice.
  • Change Rate When Creating Notice: If checked, the rate will change when the pre-notice is generated, and the payment will recalculate on the effective date (e.g., 30 days later).

3.3.3 Rate Changes (Default Values)

  • Note: All fields here are default values for the group and can be overridden on individual loan records.
  • Max Life Increase: Maximum allowable rate increase over the loan’s lifetime.
  • Max Life Decrease: Maximum allowable rate decrease over the loan’s lifetime.
  • Max Incremental Increase: Maximum allowable rate increase per individual rate change.
  • Max Incremental Decrease: Maximum allowable rate decrease per individual rate change.
  • Max Yearly Increase: Maximum allowable rate increase per year.
  • Max Yearly Decrease: Maximum allowable rate decrease per year.
  • Rate Floor: The minimum rate the loan can reach. The rate will never go below this value.
  • Rate Ceiling: The maximum rate the loan can reach. The rate will never go above this value.
  • Global Change Checkbox: If checked next to any field, changes made to that field will apply to ALL individual variable rate extension records using this specific variable rate group code.

4. Index Maintenance

Index Codes are used to store historical rates with corresponding dates and times. They must be created before being available in Variable Rate Group Configuration.

4.1 Accessing Index Maintenance

Navigate to: Loans > Variable Rate Loans > Index Maintenance from the FLEX Main Menu.

4.2 Managing Index Codes

  • View/Maintain Existing Codes: Place S next to an index code and press Enter.
  • View Rate History: Place H next to an index code and press Enter.
  • Add New Index Code: Select F6.

4.3 Adding New Index Code

  1. Index Code: Enter a new single-character alpha or numeric code.
  2. Description: Enter a descriptive name for the index code.
  3. Assign Rate: Place H next to the new index code and press Enter.
  4. Add Rate to Index: Select F6.
    • The effective date defaults to today’s date but can be changed.
    • Enter the new rate and press Enter.

5. Pre-Notice Run & Variable Rate Change

This utility allows for generating pre-notices and applying variable rate changes.

5.1 Accessing the Utility

Navigate to: Loans > Variable Rate Loans > Pre – Notice Run / Rate Change Run from the FLEX Main Menu.

5.2 Configuration Options

  • Case: Select New Run.
  • Processing Mode:
    • Select Variable Rate – Pre-Notices for generating pre-notices.
    • Select Variable Rate – Rate Change for applying rate changes.
    • Note: All other fields on this screen are used for both pre-notices and rate changes.

5.2.1 Selection Criteria

  • Group:
    • Select Group if changing rates for an entire variable rate group.
    • Variable Rate Group: Select the specific variable rate group code.
    • Inc/Exc Loan Types:
      • Include: Select to include specific loan types.
      • Exclude: Select to exclude specific loan types.
      • All Loan Types: Leave blank to include all loan types associated with the selected Variable Rate Group codes.
    • Individual:
      • Select Individual if creating a pre-notice or changing a rate for a single account.
      • Enter the Account Number and Suffix.

5.2.2 Processing Options

  • Update Files:
    • Unchecked: Generates a worksheet showing the potential impact of rate changes or pre-notice generation without updating files. It is highly recommended to review this worksheet before updating files. No notices will print in this mode.
    • Checked: Updates member files with rate changes or generates pre-notices (if in pre-notice processing mode).
  • Effective Date: Enter the date used to determine if pre-notices or rate changes are due.
  • Submit to Batch: If checked, the job runs in the background, releasing the screen. This is typically not required for quick processes.

5.2.3 Adjustment Options

  • Change Code: Determines how the rate will be changed, in conjunction with the “Interest Rate” field.
    • No Change: No rate adjustments will occur.
    • Up: Increases the rate by the percentage entered in “Interest Rate.”
      • Example: Current rate 3.5%, “Interest Rate” 0.5% → New rate 4.0%.
    • Down: Decreases the rate by the percentage entered in “Interest Rate.”
      • Example: Current rate 3.5%, “Interest Rate” 0.5% → New rate 3.0%.
    • Set: Sets the rate to the value entered in “Interest Rate.”
    • Index: Adjusts rates based on the selected index and individual member margins (up/down) stored in their variable rate extension.
      • Example: Index 3.25%. Member A has margin +0.25 → New rate 3.5%. Member B has margin -0.25 → New rate 3.0%.
  • Interest Rate: Enter the rate based on the “Change Code” selected.
  • Important Note: Regardless of the rate set here, the system always adheres to the minimum and maximum rate changes, floors, and ceilings defined in the member’s individual variable rate extension. These settings cannot be overridden.

5.2.4 Execution

  • Process: Click to execute the selected options. This will generate worksheets (if selected), print pre-notices (if updated), and apply rate changes (if updated).
  • Retrieve: Calculates and displays “Variable Rate Loan Statistics” in the bottom panel of the screen.

6. Variable Rate Extension through Loan Processing

The variable rate extension for an individual loan can be configured and maintained during the loan processing workflow.

6.1 Accessing the Extension

When adding a new variable rate loan, if the variable rate group code is set to allow maintenance during loan entry, the “Variable Rate Loan Extension” screen will appear in the workflow.

6.2 Default Population

Defaults defined in the Variable Rate Loan Group Code will automatically populate this screen. These values can be changed for the individual loan record if necessary.

6.3 Rate Information

  • Rate Group Code: Displays the Variable Rate Group Code associated with the loan.
  • Current Loan Rate: Shows the loan’s current interest rate.
  • Original Loan Rate: Displays the initial loan rate. For new loans, this will be the same as the current rate.
  • Current Loan Rate Based on Index: Shows the index rate that the current loan rate is derived from.
  • Rate Basis is Index Plus or Minus Margin:
    • Availability: These fields appear only if the Variable Rate Index Code is configured to be tied to an index.
    • Purpose: Used to adjust the individual loan’s rate up or down from the index.
    • Example: If a member has “A paper” and the credit union policy is to decrease the rate by 0.25% from the index, check “Minus” and enter “0.25” in the margin field.
    • Application: Often used for risk-based rate changes, allowing individual loans within the same group to have different rates.

6.4 Rate Change Information

Information in these fields is initially populated by defaults from the Variable Rate Group Code but can be modified for individual records. Changes here do not affect other loans, even if they use the same Variable Rate Group Code.

  • Frequency: Select the rate change frequency.
  • Change On: Select the specific timing for rate changes.
  • Next Change Date:
    • Displays the next calculated change date based on the loan’s open date and frequency.
    • Modifiable: This date can be changed. For example, to accommodate an introductory rate, adjust this date to the end of the introductory period. Regular changes will then commence after this date.
  • Rate Floor/Ceiling: Displays the default floor and ceiling rates, which can be adjusted.
  • Max Life Increase/Decrease%: Maximum allowable rate increase or decrease over the loan’s lifetime.
  • Max Incremental Increase/Decrease%: Maximum allowable rate increase or decrease per individual rate change.
  • Max Yearly Increase/Decrease%: Maximum allowable rate increase or decrease per year.
  • Anniversary Rate/Anniversary: Initially displays the original rate and loan open date, incrementing annually.

6.5 Pre-Notice Information

For new loans, the first three fields will be blank as no pre-notice has been generated. For loan add-ons, these fields will show the last pre-notice information.

  • Last Pre-Notice Sent Date: Displays the date of the last generated pre-notice.
  • Rate Sent on Pre-Notification: Shows the rate displayed on the last pre-notification.
  • Payment Sent on Last Pre-Notification: Indicates the new payment amount shown on the last pre-notification.
  • Number of Days Before Change to Notify: Indicates the number of days before the “Next Rate Change Date” that a pre-notice should be generated.

7. Variable Rate Extension in Loan Maintenance

A “Variable Rate Extension” tab is available within Loan Maintenance for existing loans.

7.1 Accessing the Tab

Navigate to Loan Maintenance and select the Variable Rate tab.

7.2 Information Population and Modification

As rate changes are applied and pre-notices generated, most information on this tab will automatically populate. However, changes can be made if necessary.

7.3 Rate Information

  • Rate Group Code: Displays the Variable Rate Group Code associated with the loan.
  • Current Loan Rate: Shows the loan’s current interest rate.
  • Original Rate: Displays the initial loan rate.
  • Last Index Used: Displays the last index rate applied.
  • Rate Basis is Index Plus or Minus Margin: (Same functionality as described in Section 6.3).

7.4 Rate Change Information

(Same functionality as described in Section 6.4).

7.5 Pre-Notice Information

  • Days Before Notify/Last Pre-Notice Sent Date: Displays the number of days before the next rate change date a pre-notice should be generated, and the date the last pre-notice was generated.
  • Pre-Notification Rate Used/Payment Used: Displays the rate and payment amount shown on the last pre-notification.
  • Balance Used/Full Term Used: Displays the balance and full term used to calculate the new payment on the last pre-notice.
  • Old Remaining Term Used/New Remaining Term Used: Displays the old and new remaining terms used for new payment calculation on the last pre-notice (if applicable).
  • Date To Be Paid: Displays the calculated payoff date based on the new rate, term, and payment.
  • Look Back Days: An optional field for the system to read historical data back a specified number of days to determine the rate change. This field is typically left blank.