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Oracle Lease and Finance Management User's Guide
Release 12.1
Part Number E13583-05
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Variable Rate Contracts

This chapter covers the following topics:

Overview

Leasing and Finance Management features both fixed and variable rate contracts. When authoring a fixed rate lease or loan contract, the implicit interest rate is calculated based on the payments you define on the contract. Based on those payments, Leasing and Finance Management calculates the implicit interest rate. On a fixed rate loan, you have the option to specify an interest rate for the contract, which is used to calculate the interest payments. You can define either a total loan payment , including combined principal and interest, or a principal payment and interest rate. When you choose to define a principal payment and interest rate, the interest rate defined is used to calculate the interest payment amounts. For variable rate contracts, you can associate an interest index to the contract, which is used to recalculate periodic payments or to recalculate the interest payments.

Based on the interest index associated to a contract, the applicable interest rate can change during the term of a contract, making it a variable rate contract. Leasing and Finance Management calculates the applicable interest rate and processes variable rate for a variety of contract types and interest scenarios. Leasing and Finance Management calculates variable interest based on the contract types defined. Contract types are determined by Book Classification, Tax Owner, Interest Calculation Basis, and Revenue Recognition Method. Leasing and Finance Management calculates variable interest for the following book classifications:

Conditions

Leasing and Finance Management processes variable rate with the following conditions:

Variable Rate Leases

Overview

For a fixed rate lease, the implicit interest rate is based on the payments defined on the contract, and does not change during the life of the contract. For a variable rate lease contract, the payments are revised based on a interest index associated to the contract. Leasing and Finance Management features variable rate for Operating Leases, Direct Finance Leases, and Sales Type Leases.

The revenue recognition method for leases is Streams.

The interest calculation basis for variable rate leases are:

Fixed Rate

For fixed rate lease contracts, the payments do not change over the life of a contract as the interest rate is constant.

Reamortization

For a variable rate reamort lease, periodic payments are defined during booking. Reamortization is the automated process that solves for a new periodic payment amount based on the applicable interest rate for the contract and the remaining balance that will pay down the balance amount over the remaining term to zero, assuming no future change in interest rates.

Float Factors

Float Factor lease contracts include additional billing based on the applicable interest rate of the contract in addition to the periodic rent. The additional amount is billed using the float factor adjustment stream on the rent due date.

Variable Rate Lease Parameters

Before entering interest rate details for a lease contract, verify that the interest rate parameters are valid and supported. The following table describes what interest rate parameters are supported in Leasing and Finance Management for the following types of leases:

Note: For Conversion Basis fields, you can enter a value, but automatic processing of the conversions is not supported in Leasing and Finance Management.

Lease Interest Rate Parameters
Parameters Lease Type Lease Type Lease Type
Interest Calculation Basis Fixed Reamort Float Factor
Revenue Recognition Method Streams Streams Streams
Payment Type Rent Rent Rent
Interest Index N/A Mandatory Optional
Base Rate N/A Optional Optional
Interest Start Date N/A Mandatory Mandatory
Adder Rate N/A Mandatory Optional
Maximum Rate N/A Mandatory Optional
Minimum Rate N/A Mandatory Optional
Principal Basis N/A Scheduled Scheduled
Days in a Month N/A 30 Optional
Days in a Year N/A 360 Optional
Interest Basis N/A Simple N/A
Rate Delay N/A Optional Optional
Rate Delay Frequency N/A Optional Optional
Compounding Frequency N/A N/A Optional
Formula Name N/A N/A Mandatory
Rate Change Start Date N/A Optional Optional
Rate Change Frequency N/A Optional Optional
Rate Change Value N/A Optional Optional
Conversion Options Optional Optional Optional
Next Conversion Date Optional Optional Optional
Conversion Type Optional Optional Optional

Variable Rate Lease Examples

The following section explains the most common variable rate lease scenarios.

Reamortize Contract on Rate Change

Overview

In this scenario the rent payment is defined on the contract at the time of booking. On the billing schedule, if there is a change in the applicable interest rate, the new rate is used to calculate the future payments and rebook the contract. The rent is billed on the Rent schedule.

The Create Receivables Variable Rate Invoices program should be run for each billing period to reamortize the contract. The program will recalculate the future payments and rebook the contract with the revised payments.

The following table describes contract conditions for reamortizing a lease contract on an interest rate change.

Reamortize Contract on Rate Change
Contract Conditions Description
Applicability Applies to Operating Leases, Direct Finance Leases, and Sales Type Leases.
Rate Change Interest rate can change only on the scheduled billing date.
Process Recalculate payments based on new interest rate for the balance term.
Rebook contract with revised payments and regenerate amortization schedule.
Billing Billing is done from schedule.
Cash Cash is applied to invoices.
Revenue Revenue is recognized based on income streams generated.
Interest Calculation Basis Reamort
Revenue Recognition Method Streams

Setup

Setup steps must be completed before variable rate contracts can be processed. The following table describes setup requirements for a reamortization lease contract on a rate change.

Setup Steps for Reamort Lease on Rate Change
Setup Step Location/Link Description
Stream Purpose Stream Types Use streams applicable by book class for fixed rate contracts.
Pricing Method Stream Generation Template External only
Book Classification Stream Generation Template Lease
Tax Owner Stream Generation Template As applicable
Interest Calculation Basis Stream Generation Template Reamort
Revenue Recognition Method Stream Generation Template Streams
Primary Stream Generation Template Use streams applicable by book class for fixed rate contracts.
Dependent Stream Generation Template Use streams applicable by book class for fixed rate contracts.
Validations Stream Generation Template Stream generation source must be External.
Accounting Templates Accounting Template Set Use streams applicable by book class for fixed rate contracts.
Quality Values Financial Product Book Classification and Tax Owner are as applicable. Interest Calculation Method is Reamort. Revenue Recognition Basis is Streams.
Accrual Streams Financial Product Use streams applicable by book class for fixed rate contracts.
Validations Financial Product Quality values must match the stream generation template.

Contract Details

When authoring your contract, only a level Payment Schedule is permitted for reamort leases.

Procedures

When processing a reamortization on rate change for a variable rate lease, complete the procedures in the following table.

Procedure Description
1. Create Contract See Create Interest Rate Details.
2. Associate Financial Product with correct Quality Values See Define Streams and Pricing.
3. Activate the Contract See Contract Authoring.
4. Run the Variable Rate Billing process See Variable Rate Billing.
5. Run the Generate Accruals process See Processes.

Contract Transactions

The following table shows what contract transactions are allowed for a variable rate reamort lease on a rate change

Transaction Conditions
Rebook Current dated and prospective changes are permitted to interest rate parameters.
Current dated and prospective changes are permitted to additional interest rate parameters.
Principal Paydown Not applicable for leases.
Loan Paydown Not applicable for leases.
Termination Early and Partial terminations are allowed.
Lease Center Non-financial updates can be made.

Float Factor Contracts

Overview

In this scenario, a periodic rent payment is defined during booking, which does not change during the term of the contract. Additionally, a float factor formula is associated to the contract. On the rent schedule, the float factor formula is computed based on the applicable interest rate of the contract and the amount derived is billed using a float factor stream.

The Create Receivables Variable Rate Invoices program should be run for each rental period to calculate the additional float factor adjustment amount. The program will solve the formula associated to the contract and create a Float Factor Adjustment stream for the derived amount. The Float Factor Adjustment stream will be billed using the standard billing programs for Leasing and Finance Management.

Float Factor Contracts with Rate Change
Contract Conditions Description
Applicability Applies to Operating Leases, Direct Finance Leases, and Sales Type Leases.
Rate Change Interest rate can change as defined by the user.
Process Interest adjustments calculated for interest rate changes by solving a formula to be defined by user.
Billing Billing done on rent schedule.
Adjustments are calculated by solving formula.
Cash Cash is applied to invoices.
Revenue Revenue is recognized based on income streams generated. Float Factor Adjustment amount is recognized as income.
Interest Calculation Basis Float Factor
Revenue Recognition Method Streams

Setup

Setup steps must be completed before variable rate contracts can be processed. The following table describes setup requirements for a Float Factor lease contract on a rate change.

Setup Steps for Float Factor Contracts with Rate Change
Setup Step Location/Link Description
Stream Purpose Stream Types Use streams applicable by book class for fixed rate contracts.
Use Float Factor Adjustment for billing interest adjustment amounts.
Pricing Method Stream Generation Template External only
Book Classification Stream Generation Template Operating Lease, Direct Finance Lease, or Sales Type Lease
Tax Owner Stream Generation Template As applicable
Interest Calculation Basis Stream Generation Template Float Factors
Revenue Recognition Method Stream Generation Template Streams
Primary Stream Generation Template Use streams applicable by book class for fixed rate contracts.
Dependent Stream Generation Template Use streams applicable by book class for fixed rate contracts.
Use Float Factor Adjustment as a dependent of Rent.
Validations Stream Generation Template Stream generation source must be External.
Accounting Template Accounting Template Set Use streams applicable by book class for fixed rate contracts.
Setup accounting templates for Float Factor Adjustment stream for both billing and accrual transaction types.
Quality Values Financial Product Book Classification and Tax Owner are as applicable. Interest Calculation Method is Float Factor. Revenue Recognition Basis is Streams.
Accrual Streams Financial Product Use streams applicable by book class for fixed rate contracts. Float Factor Adjustment stream to be setup on financial product for accrual.
Validations Financial Product Quality values must match the stream generation template.

Contract Details

Procedures

When processing a rate change for a float factor lease, complete the procedures in the following table.

Procedure Description
1. Create Contract See Contract Authoring.
2. Associate Financial Product with correct Quality Values See Financial Product.
3. Define Applicable Interest Rate Parameters See Create Interest Rate Details.
4. Activate the Contract See Contract Authoring.
5. Run the Variable Rate Billing process Run Create Receivables Variable Rate Invoices. The float factor adjustment amount is calculated and stored as a stream for billing. See Billing.
6. Run the Bill Processing Program Set See Billing.
7. Run the Generate Accruals process Generate Accruals - Streams. Streams defined for accrual are accounted as revenue. Float Factor Adjustment stream amount is accounted as revenue.
6. Terminate Expired Contracts Variable rate processing must be completed prior to the termination of a contract.

Contract Transactions

The following table shows what contract transactions are allowed for a Float Factor lease on a rate change.

Transaction Conditions
Rebook Current dated and prospective changes are permitted to interest rate parameters.
Principal Paydown Not applicable for leases.
Loan Paydown Not applicable for leases.
Termination Early and Partial terminations are allowed.
Lease Center No financial updates are permitted.

Variable Rate Loans

Overview

Leasing and Finance Management supports fixed rate and variable rate loan contracts. For a fixed rate loan, the implicit interest rate does not change during the life of the contract. For a variable rate contract, the payments may be revised based on an interest index associated to the contract. Contracts with a revenue recognition method of Actual are also referred to as Per Diem Loans.

The processing of variable rate contracts will differ based on the interest calculation basis and the revenue recognition method defined. Interest calculation basis determines whether the actual or scheduled principal balance should be used to calculate interest for a variable rate contract. The revenue recognition method determines whether the actual or scheduled principal balance should be used to account for income.

The following table shows interest calculation basis and revenue recognition method combinations for variable rate loan contracts.

Variable Rate Loan Type Combinations
Interest Calculation Basis Revenue Recognition Method
Fixed Actual
Float Estimated and Billed
Actual
Reamort Streams
Actual
Catchup/Cleanup Streams

Leasing and Finance Management calculates variable rate loans based on the following types.

Variable Rate Loan Types

The following section describes common Leasing and Finance Management variable rate loan types.

Fixed Loan Where Revenue Recognition is Actual

For a fixed rate loan, the periodic payment amounts to be billed do not change over the life of a contract, as the interest rate is constant. If the revenue recognition method is Actual, the loan is processed as a variable rate contract. The interest amount recognized as income is based on the applicable interest rate and payment received for the contract. The interest amount to be accrued is calculated based on the actual principal balance of the loan. The payment is first applied towards interest and the remaining payment amount is applied to the principal balance of the contract.

Floating Rate Loan Where Revenue Recognition is Estimated and Billed

For a floating rate loan, the principal payment amounts are determined during booking and do not change over the life of the contract. The interest amounts are calculated and billed periodically based on the applicable interest rate of the contract. The interest rate on the loan may change during the lifetime of the contract, at a frequency different to the billing frequency. Principal and Interest are billed on the Principal schedule and the Interest schedule respectively. The actual interest amount is recognized as income. If the actual interest has not been calculated for a period, an estimated interest amount is accrued, which is reversed in the following period.

Floating Rate Loan Where Revenue Recognition is Actual

For a floating rate loan where the revenue recognition method is Actual, the principal payment amounts are determined during booking. The interest amounts are calculated periodically based on the applicable interest rate of the contract. The interest rate on the loan may change during the lifetime of the contract, at a frequency different to the billing frequency. The sum of the principal payment and the calculated interest amount for a given period is billed as Variable Loan Payment.

The interest amount recognized as income is based on the applicable interest rate and payment received for the contract. The interest amount to be accrued is calculated based on the actual principal balance of the loan. The payment is first applied towards interest and the remaining payment amount is applied to the principal balance of the contract.

Reamort Where Revenue Recognition is Streams

For a reamort loan, periodic payments are defined during booking. The Principal and Interest payment streams are generated during booking. On the billing schedule, if there is a change in the applicable interest rate then the new rate is used to calculate the future payments and rebook the contract. Principal and Interest is billed on the payment schedule. Interest income is accrued at the end of each month.

Reamort Loan Where Revenue Recognition is Actual

For a reamort loan where the revenue recognition method is Actual, periodic payments are defined during booking. On the billing schedule, if there is a change in the applicable interest rate then the new rate is used to calculate the future payments and rebook the contract. Loan payment is billed on the payment schedule.

The interest amount recognized as income is based on the applicable interest rate and payment received for the contract. The interest amount to be accrued is calculated based on the actual principal balance of the loan. The payment is first applied towards interest and the remaining payment amount is applied to the principal balance of the contract.

Catchup/Cleanup

For a Catchup/Cleanup loan, periodic payments are defined during booking. Principal payment, Interest payment and Income accrual streams are generated at the time of booking the contract. Principal and Interest are billed on the Principal schedule and the Interest schedule respectively. The actual principal balance is used as the basis of catchup calculation. The actual interest is calculated during catchup processing at the catchup frequency. If the actual interest amount exceeds the estimated interest, the difference is billed. If the estimated interest amount exceeds the actual interest calculated, then the amount can either be refunded, adjusted against principal or stored against the contract.

The Income accrual stream is used to recognize income based on the estimated interest at the end of each month. The additional interest amount billed is also recognized as income, on the catchup frequency.

Variable Rate Loan Parameters

Before entering interest rate details for a loan contract, verify that the interest rate parameters are valid and supported. The following tables describe what interest rate parameters are supported in Leasing and Finance Management for the following types of loans:

Note: For Conversion Basis fields, you can enter a value, but automatic processing of the conversions is not supported in Leasing and Finance Management.

Fixed Loan Interest Rate Parameters
Parameters LoanType LoanType LoanType LoanType
Interest Calculation Basis Fixed Fixed Fixed Fixed
Revenue Recognition Method Streams Streams Actual Actual
Payment Type Rent Principal Rent Principal
Interest Index N/A N/A Mandatory Mandatory
Base Rate N/A Mandatory Optional Mandatory
Interest Start Date N/A N/A Mandatory Mandatory
Adder Rate N/A N/A Mandatory Mandatory
Maximum Rate N/A N/A Mandatory Mandatory
Minimum Rate N/A N/A Mandatory Mandatory
Principal Basis N/A N/A Actual Actual
Days in a Month Optional Optional Mandatory Mandatory
Days in a Year Optional Optional Mandatory Mandatory
Interest Basis N/A N/A Mandatory Mandatory
Rate Delay N/A N/A Optional Optional
Rate Delay Frequency N/A N/A Optional Optional
Compounding Frequency N/A N/A Optional Optional
Formula Name N/A N/A Optional Optional
Rate Change Start Date N/A N/A Optional Optional
Rate Change Frequency N/A N/A Optional Optional
Rate Change Value N/A N/A Optional Optional
Conversion Options Optional Optional Optional Optional
Next Conversion Date Optional Optional Optional Optional
Conversion Type Optional Optional Optional Optional
Floating Loan Interest Rate Parameters
Parameters LoanType LoanType LoanType LoanType
Interest Calculation Basis Float Float Float Float
Revenue Recognition Method Estimated/Billed Estimated/Billed Actual Actual
Payment Type Rent Principal Rent Principal
Interest Index Mandatory Mandatory Mandatory Mandatory
Base Rate Optional Mandatory Optional Mandatory
Interest Start Date Mandatory Mandatory Mandatory Mandatory
Adder Rate Mandatory Mandatory Mandatory Mandatory
Maximum Rate Mandatory Mandatory Mandatory Mandatory
Minimum Rate Mandatory Mandatory Mandatory Mandatory
Principal Basis Actual/Scheduled Actual/Scheduled Actual Actual
Days in a Month Mandatory Mandatory Mandatory Mandatory
Days in a Year Mandatory Mandatory Mandatory Mandatory
Interest Basis Mandatory Mandatory Mandatory Mandatory
Rate Delay Optional Optional Optional Optional
Rate Delay Frequency Optional Optional Optional Optional
Compounding Frequency Optional Optional Optional Optional
Formula Name Optional Optional Optional Optional
Rate Change Start Date Optional Optional Optional Optional
Rate Change Frequency Optional Optional Optional Optional
Rate Change Value Optional Optional Optional Optional
Conversion Options Optional Optional Optional Optional
Next Conversion Date Optional Optional Optional Optional
Conversion Type Optional Optional Optional Optional
Reamortization Loan Interest Rate Parameters
Parameters LoanType LoanType LoanType LoanType
Interest Calculation Basis Reamort Reamort Reamort Reamort
Revenue Recognition Method Streams Streams Actual Actual
Payment Type Rent Principal Rent Principal
Interest Index Mandatory Mandatory Mandatory Mandatory
Base Rate Optional Mandatory Optional Mandatory
Interest Start Date Mandatory Mandatory Mandatory Mandatory
Adder Rate Mandatory Mandatory Mandatory Mandatory
Maximum Rate Mandatory Mandatory Mandatory Mandatory
Minimum Rate Mandatory Mandatory Mandatory Mandatory
Principal Basis Scheduled Scheduled Scheduled Scheduled
Days in a Month 30 30 Mandatory Mandatory
Days in a Year 360 360 Mandatory Mandatory
Interest Basis Simple Simple Simple Simple
Rate Delay Optional Optional Optional Optional
Rate Delay Frequency Optional Optional Optional Optional
Rate Change Start Date Optional Optional Optional Optional
Rate Change Frequency Optional Optional Optional Optional
Rate Change Value Optional Optional Optional Optional
Conversion Options Optional Optional Optional Optional
Next Conversion Date Optional Optional Optional Optional
Conversion Type Optional Optional Optional Optional
Catchup/Cleanup Loan Interest Rate Parameters
Parameters LoanType LoanType
Interest Calculation Basis Catchup/Cleanup Catchup/Cleanup
Revenue Recognition Method Streams Streams
Payment Type Rent Principal
Interest Index Mandatory Mandatory
Base Rate Optional Mandatory
Interest Start Date Mandatory Mandatory
Adder Rate Mandatory Mandatory
Maximum Rate Mandatory Mandatory
Minimum Rate Mandatory Mandatory
Principal Basis Actual Actual
Days in a Month Mandatory Mandatory
Days in a Year Mandatory Mandatory
Interest Basis Mandatory Mandatory
Rate Delay Optional Optional
Rate Delay Frequency Optional Optional
Compounding Frequency N/A N/A
Formula Name N/A N/A
Catch-up Basis Actual Actual
Catch-up Start Date Mandatory Mandatory
Catch-up Frequency Mandatory Mandatory
Catch-up Settlement Mandatory Mandatory
Rate Change Start Date Optional Optional
Rate Change Frequency Optional Optional
Rate Change Value Optional Optional
Conversion Options Optional Optional
Next Conversion Date Optional Optional
Conversion Type Optional Optional
Revolving Loan Interest Rate Parameters
Parameters LoanType LoanType
Interest Calculation Basis Float Float
Revenue Recognition Method Estimated/Billed Actual
Payment Type None None
Interest Index Mandatory Mandatory
Base Rate Mandatory Mandatory
Interest Start Date Mandatory Mandatory
Adder Rate Mandatory Mandatory
Maximum Rate Mandatory Mandatory
Minimum Rate Mandatory Mandatory
Principal Basis Actual Actual
Days in a Month Mandatory Mandatory
Days in a Year Mandatory Mandatory
Interest Basis Mandatory Mandatory
Rate Delay Optional Optional
Rate Delay Frequency Optional Optional
Compounding Frequency Optional Optional
Formula Name Optional Optional
Rate Change Start Date Optional Optional
Rate Change Frequency Optional Optional
Rate Change Value Optional Optional
Conversion Options Optional Optional
Next Conversion Date Optional Optional
Conversion Type Optional Optional

Variable Rate Loan Examples

Fixed Amount Billed Periodically with Principal Reduction on Receipt of Cash

Periodic payments are defined on the contract. Loan payment schedule is generated at the time of booking the contract. The actual interest is calculated on Receipt of cash based on the actual principal balance. The receipt is applied first towards the interest amount and then to the principal. Actual interest is accrued as and when the accrual program is run. The actual interest is recalculated up to the accrual date and the difference between the actual interest accounted till date and actual interest calculated is accrued.

Overview

The following table describes contract conditions for a Fixed Amount Billed Periodically with Principal Reduction on Receipt of Cash loan.

Fixed Amount Billed Periodically with Principal Reduction on Receipt of Cash
Contract Conditions Description
Applicability Loans
Rate Change Interest rate shall change based on the index and contract setup.
Process Interest is calculated on cash receipt.
Cash receipt is applied to interest first, balance is applied to principal.
Billing Billing is done on original schedule.
Cash Interest is calculated on cash receipt.
Cash receipt is applied to interest first, balance is applied to principal.
Revenue Calculated on actual principal balance with applicable rate.
Interest Calculation Basis Fixed
Revenue Recognition Method Actual

Setup

Setup steps must be completed before variable rate contracts can be processed. The following table describes setup requirements for a variable rate loan where a fixed amount billed periodically with principal reduction on receipt of cash loan.

Setup Steps for Fixed Amount Billed Periodically with Principal Reduction on Receipt of Cash
Setup Step Location/Link Description
Stream Purpose Stream Types Use streams applicable by book class for fixed rate contracts.
Actual Income Accrual - to accrue actual income
Variable Loan Payment - for billing calculated principal and interest amount
Daily Interest - Interest - for actual interest amounts
Daily Interest - Principal - for actual principal amounts
Excess Interest Paid - for excess interest recovered
Excess Loan Payment Paid - for excess loan payment recovered
Excess Principal Paid - for excess principal recovered
Unscheduled Loan Payment - for loan paydown
Unscheduled Principal Payment - for principal paydown
Pricing Method Stream Generation Template External only
Book Classification Stream Generation Template Loans
Tax Owner Stream Generation Template As applicable
Interest Calculation Basis Stream Generation Template Fixed
Revenue Recognition Method Stream Generation Template Actual
Primary Stream Generation Template Use streams applicable by book class for fixed rate contracts.
Dependent Stream Generation Template Use streams applicable by book class for fixed rate contracts.
Actual Income Accrual as a dependent of Rent
Daily Interest - Interest as a dependent of Rent
Daily Interest - Principal as a dependent of Rent
Excess Interest Paid as a dependent of Rent
Excess Loan Payment Paid as a dependent of Rent
Excess Principal Paid as a dependent of Rent
Unscheduled Loan Payment as a dependent of Rent
Unscheduled Principal Payment as a dependent of Rent
Variable Loan Payment as a dependent of Rent
Validations Stream Generation Template Stream generation source must be External.
Accounting Templates Accounting Template Set Use streams applicable by book class for fixed rate contracts.
Actual Income Accrual for transaction type Accrual
Daily Interest - Interest for transaction type Receipt Application
Daily Interest - Principal for transaction type Receipt Application
Variable Loan Payment for transaction type Billing
Unscheduled Loan Payment for transaction type Billing
Unscheduled Principal Payment for transaction type Billing
Quality Values Financial Product Book Classification is Loan. Tax Owner is Lessee. Interest Calculation Basis Fixed. Revenue Recognition Method is Actual.
Accrual Streams Financial Product Use streams applicable by book class for fixed rate contracts.
Actual Income Accrual Stream
Validations Financial Product Quality values must match the stream generation template.

Contract Details

Procedures

In order to process a variable rate loan for a Fixed Amount Billed Periodically with Principal Reduction on Receipt of Cash , complete the procedures in the following table.

Procedure Description
1. Create Contract See Contract Authoring.
2. Associate Financial Product with correct Quality Values See Define Financial Product.
3. Define Applicable Interest Rate Parameters See Create Interest Rate Details.
4. Activate the Contract See Contract Authoring.
5. Run Bill Processing Program Set See Billing.
6. Run the Generate Accruals process Generate Accruals - Actual.
Streams defined for accrual are accounted as revenue.
7. Create Receipts See Receipts and Invoices.
8. Run Daily Interest Calculation Program See Processes.
9. Terminate Expired Contracts Daily Interest Calculation must be completed prior to termination or expiration of contract.

Contract Transactions

The following table shows what contract transactions are allowed for a variable rate contract when a fixed amount is billed periodically with principal reduction on receipt of cash.

Transaction Conditions
Rebook Current dated and prospective changes are permitted to interest rate parameters.
Principal Paydown Permitted
Loan Paydown Permitted
Termination Early and Partial terminations are allowed.
Lease Center Non-financial updates can be made.

Calculate Interest Billing on Rate Change

Overview

The periodic payments are defined on the contract and a Variable Interest Schedule is generated at the time of booking the contract. Actual or Scheduled Principal Balance may be defined as the basis of interest calculation. The actual interest is calculated at the time of Billing. Principal and Interest are billed on Principal schedule and Interest schedule respectively.

Calculate Interest Billing on Rate Change
Contract Conditions Description
Applicability Loan or Revolving Loan
Rate Change Interest rate shall change based on the index and contract setup.
Process Variable interest billing schedule may defer to principal billing schedule .
Interest calculated for billing on variable interest schedule.
Billing Principal billing done on original schedule.
Interest rate changes are billed on the variable interest schedule.
Cash Cash is applied to invoices.
Revenue Income is estimated from the last billed date to the accounting period close.
Estimated income is reversed in the next accounting period.
Interest billed is accounted as income.
Interest Calculation Basis Float
Revenue Recognition Method Estimated and Billed

Setup

Setup steps must be completed before variable rate contracts can be processed. The following table describes setup requirements for Calculate Interest Billing on Rate Change.

Setup Steps for Calculate Interest Billing on Applicable Rates
Setup Step Location/Link Description
Stream Purpose Stream Types Streams applicable by book class for fixed rate contracts.
Variable Interest - for billing calculated interest amounts.
Interest Payment - should be non billable as interest payment stream is not billed.
Variable Interest Income - to accrue estimated income
Unscheduled Principal Payment - for principal paydown
Pricing Method Stream Generation Template External only
Book Classification Stream Generation Template Loan, Revolving Loan
Tax Owner Stream Generation Template As applicable
Interest Calculation Basis Stream Generation Template Float
Revenue Recognition Method Stream Generation Template Estimated and Billed
Primary Stream Generation Template Use streams applicable by book class for fixed rate contracts.
Dependent Stream Generation Template Use streams applicable by book class for fixed rate contracts.
Variable Interest as a dependent of Rent.
Interest Payment as a dependent of Rent.
Variable Interest Income as a dependent of Rent.
Unscheduled Principal Payment as a dependent of Rent.
Validations Stream Generation Template Stream generation source must be External.
Accounting Templates Accounting Template Set Use streams applicable by book class for fixed rate contracts.
Variable Interest for transaction type Billing.
Variable Interest for transaction type Accrual.
Variable Interest Income for transaction type Accrual.
Unscheduled Principal Payment for transaction type Billing.
Quality Values Financial Product Book Classification is Loan or Revolving Loan. Tax Owner is Lessee. Interest Calculation Basis is Float. Revenue Recognition Method is Estimated and Billed.
Accrual Streams Financial Product Use streams applicable by book class for fixed rate contracts.
Variable Interest for billed interest.
Variable Interest Income for estimated interest.
Validations Financial Product Quality values must match the stream generation template.

Contract Details

In order to calculate the actual interest on rate change for variable rate contracts with an interest calculation of Float, complete the procedures in the following table.

Procedures

When you calculate variable rate for Calculate Interest Billing on Applicable Rates, complete the procedures in the following table.

Procedure Description
1. Create Contract See Contract Authoring.
2. Associate Financial Product with correct Quality Values See Define Financial Product.
3. Define Applicable Interest Rate Parameters See Create Interest Rate Details.
4. Activate the Contract See Contract Authoring.
5. Run the Variable Rate Billing process Run Create Receivables Variable Rate Invoices. Actual interest amounts are calculated.
6. Run the Bill Processing Program Set See Billing.
7. Run the Generate Accruals process Generate Accruals - Estimated and Billed.
Income is estimated from the last billed date to the accounting period close. Estimated income is reversed in the next accounting period. Interest billed is accounted as income.
8. Terminate Expired Contracts Variable rate processing must be completed prior to the termination of an expired contract.

Contract Transactions

The following table shows what contract transactions are allowed for variable rate contracts when the interest calculation is Float.

Transaction Conditions
Rebook Current dated and prospective changes are permitted to interest rate parameters.
Current dated and prospective changes are permitted to additional interest rate parameters.
Principal Paydown Permitted
Loan Paydown Not applicable
Termination Early and Partial terminations are allowed.
Lease Center No financial updates are permitted.

Interest Amount Varies on Change of Interest Rate With Principal Reduction on Receipt of Cash

Overview

The following table describes contract conditions for a variable rate contract when the amount billed varies on change of interest rate with principal reduction on receipt of cash.

Interest Amount Varies on Change of Interest Rate With Principal Reduction on Receipt of Cash
Contract Conditions Description
Applicability Loans, Revolving Loans
Rate Change Interest rate shall change based on the index and contract setup.
Process Billing amount is derived from original principal schedule and calculated interest.
Interest is recalculated on cash receipt .
Cash receipt is applied to interest first, balance is applied to principal.
Billing Principal billing is done on original schedule.
Interest is calculated and billed.
Cash Interest is calculated on cash receipt.
Cash receipt is applied to interest first, balance is applied to principal.
Revenue Calculated on actual principal balance with applicable rate.
Interest Calculation Basis Float
Revenue Recognition Method Actual

Setup

Setup steps must be completed before variable rate contracts can be processed. The following table describes setup requirements for a variable rate loan when the interest amount varies on change of interest rate with principal reduction on receipt of cash loan.

Setup Steps for Interest Amount Varies on Change of Interest Rate With Principal Reduction on Receipt of Cash
Setup Step Location/Link Description
Stream Purpose Stream Types Use streams applicable by book class for fixed rate contracts.
Actual Income Accrual - to accrue actual income
Variable Loan Payment - for billing calculated principal and interest amount
Daily Interest - Interest - for actual interest amounts
Daily Interest - Principal - for actual principal amounts
Excess Interest Paid - for excess interest recovered
Excess Loan Payment Paid - for excess loan payment recovered
Excess Principal Paid - for excess principal recovered
Unscheduled Loan Payment - for loan paydown
Unscheduled Principal Payment - for principal paydown
Pricing Method Stream Generation Template External only
Book Classification Stream Generation Template Loans, Revolving Loans
Tax Owner Stream Generation Template As applicable
Interest Calculation Basis Stream Generation Template Float
Revenue Recognition Method Stream Generation Template Actual
Primary Stream Generation Template Use streams applicable by book class for fixed rate contracts.
Dependent Stream Generation Template Use streams applicable by book class for fixed rate contracts.
Actual Income Accrual as a dependent of Rent
Daily Interest - Interest as a dependent of Rent
Daily Interest - Principal as a dependent of Rent
Excess Interest Paid as a dependent of Rent
Excess Loan Payment Paid as a dependent of Rent
Excess Principal Paid as a dependent of Rent
Unscheduled Loan Payment as a dependent of Rent
Unscheduled Principal Payment as a dependent of Rent
Variable Loan Payment as a dependent of Rent
Validations Stream Generation Template Stream generation source must be External.
Accounting Templates Accounting Template Set Use streams applicable by book class for fixed rate contracts.
Actual Income Accrual for transaction type Accrual
Daily Interest - Interest for transaction type Receipt Application
Daily Interest - Principal for transaction type Receipt Application
Variable Loan Payment for transaction type Billing
Unscheduled Loan Payment for transaction type Billing
Unscheduled Principal Payment for transaction type Billing
Quality Values Financial Product Book Classification is Loan or Revolving Loan. Tax Owner is Lessee. Interest Calculation Basis is Float. Revenue Recognition Method is Actual.
Accrual Streams Financial Product Actual Income Accrual Stream
Validations Financial Product Quality values must match the stream generation template.

Procedures

In order to process a variable rate loan for an interest amount varies on change of interest rate with principal reduction on receipt of cash, complete the procedures in the following table.

Procedure Description
1. Create Contract See Contract Authoring.
2. Associate Financial Product with correct Quality Values See Define Financial Product.
3. Define Applicable Interest Rate Parameters See Create Interest Rate Details.
4. Activate the Contract See Contract Authoring.
5. Run the Variable Rate Billing process Create Receivables Variable Rate Invoices.
Interest bill amounts are calculated.
6. Run Bill Processing Program Set See Processes.
7. Run Generate Accruals Process Generate Accruals - Actual
Streams defined for accrual are accounted as revenue.
8. Create Receipts See Receipts and Invoices.
9. Run Daily Interest Calculation Program See Processes
10. Terminate Expired Contracts Daily Interest Calculation must be completed prior to termination or expiration of contract.

Contract Transactions

The following table shows what contract transactions are allowed for a variable rate contract when the interest amount varies on change of interest rate with principal reduction on receipt of cash.

Transaction Conditions
Rebook Current dated and prospective changes are permitted to interest rate parameters.
Principal Paydown Permitted
Loan Paydown Permitted
Termination Early and Partial terminations are allowed.
Lease Center Non-financial updates can be made.

Reamortize Contract on Rate Change

In this example, the periodic payments are defined on the contract at the time of booking. On the billing schedule, if there is a change in the applicable interest rate, the new rate is used to calculate the new periodic payment amount based on the current principal balance that will pay down the principal balance over the remaining original term of the contract to a zero balance assuming no future change in indexed rates.

The Create Receivables Variable Rate Invoices program should be run for each billing period to reamortize the contract. The program will recalculate the future payments and rebook the contract with the revised payments.

Overview

The following table describes contract conditions for reamortizing a loan contract on an interest rate change.

Reamortize Loan on Rate Change
Contract Conditions Description
Applicability Loans
Rate Change Interest rate can change only on the scheduled billing date.
Process Recalculate payments based on new interest rate for the balance term.
Rebook contract with revised payments, regenerate amortization schedule, generate accrual and billing adjustments, if applicable
Billing Billing is done from schedule.
Cash Cash is applied to invoices.
Revenue Revenue is recognized based on income streams generated.
Interest Calculation Basis Reamort
Revenue Recognition Method Streams

Setup

Setup steps must be completed before variable rate contracts can be processed. The following table describes setup requirements for a reamortization loan contract on a rate change.

Setup Steps for Reamort Loan on Rate Change
Setup Step Location/Link Description
Stream Purpose Stream Types Use streams applicable by book class for fixed rate contracts.
Pricing Method Stream Generation Template External only
Book Classification Stream Generation Template Loan
Tax Owner Stream Generation Template As applicable
Interest Calculation Basis Stream Generation Template Reamort
Revenue Recognition Method Stream Generation Template Streams
Primary Stream Generation Template Use streams applicable by book class for fixed rate contracts.
Dependent Stream Generation Template Use streams applicable by book class for fixed rate contracts.
Validations Stream Generation Template Stream generation source must be External.
Accounting Templates Accounting Template Set Use streams applicable by book class for fixed rate contracts.
Quality Values Financial Product Book Classification and Tax Owner are as applicable. Interest Calculation Basis is Reamort. Revenue Recognition Method is Streams.
Accrual Streams Financial Product Use streams applicable by book class for fixed rate contracts.
Validations Financial Product Quality values must match the stream generation template.

Contract Details

When authoring your contract, only a level payment schedule is supported for reamort loans.

Procedures

When processing a reamortization on rate change for a variable rate loan, complete the procedures in the following table.

Procedure Description
1. Create Contract See Contract Authoring.
2. Associate Financial Product with correct Quality Values See Define Financial Product.
3. Activate the Contract See Contract Authoring.
4. Run the Variable Rate Billing process See Billing.
5. Run the Generate Accruals process See Processes.

Contract Transactions

The following table shows what contract transactions are allowed for a variable rate reamort loan on a rate change.

Transaction Conditions
Rebook Current dated and prospective changes are permitted to interest rate parameters.
Current dated and prospective changes are permitted to additional interest rate parameters.
Principal Paydown Applicable for loans
Loan Paydown Not applicable for loans where the revenue recognition method is Streams.
Termination Early and Partial terminations are allowed.
Lease Center Non-financial updates can be made.

Reamortize Contract on Rate Change with Principal Reduction on Receipt of Cash

In this scenario, the rent payment is defined on the contract at the time of booking. On the billing schedule, if there is a change in the applicable interest rate, the new rate is used to calculate the future payments and rebook the contract. The rent is billed on the Rent schedule.

The actual interest is calculated on Receipt of cash based on the actual principal balance. The receipt is applied first towards the interest amount and then to the principal. Actual interest is accrued as and when the accrual program is run. The actual interest is recalculated up to the accrual date and the difference between the actual interest accounted till date and actual interest calculated is accrued.

The Create Receivables Variable Rate Invoices program should be run for each billing period to reamortize the contract. The program will recalculate the future payments and rebook the contract with the revised payments.

Overview

The following table describes contract conditions for a Reamortize Contract on Rate Change with Principal Reduction on Receipt of Cash loan.

Reamortize Contract on Rate Change with Principal Reduction on Receipt of Cash
Contract Conditions Description
Applicability Loans
Rate Change Interest rate can only change on the scheduled billing date.
Process Recalculate payments based on new interest rate for the balance term.
Rebook contract with revised payments, regenerate amortization schedule, generate accrual and billing adjustments, if applicable
Interest is recalculated on cash receipt.
Cash receipt is applied to interest first, balance is applied to principal.
Billing Billing is done from schedule.
Cash Interest is calculated on cash receipt.
Cash receipt is applied to interest first, balance is applied to principal.
Revenue Calculated on actual principal balance with applicable rate.
Interest Calculation Basis Reamort
Revenue Recognition Method Actual

Setup

Setup steps must be completed before a variable rate contract can be processed The following table describes setup requirements for a Reamortize Contract on Rate Change with Principal Reduction on Receipt of Cash loan.

Setup Steps for Reamortize Contract on Rate Change with Principal Reduction on Receipt of Cash
Setup Step Location/Link Description
Stream Purpose Stream Types Use streams applicable by book class for fixed rate contracts.
Actual Income Accrual - to accrue actual income
Variable Loan Payment - for billing calculated principal and interest amount
Daily Interest - Interest - for actual interest amounts
Daily Interest - Principal - for actual principal amounts
Excess Interest Paid - for excess interest recovered
Excess Loan Payment Paid - for excess loan payment recovered
Excess Principal Paid - for excess principal recovered
Unscheduled Loan Payment - for loan paydown
Unscheduled Principal Payment - for principal paydown
Pricing Method Stream Generation Template External only
Book Classification Stream Generation Template Loans
Tax Owner Stream Generation Template As applicable
Interest Calculation Basis Stream Generation Template Reamort
Revenue Recognition Method Stream Generation Template Actual
Primary Stream Generation Template Use streams applicable by book class for fixed rate contracts.
Dependent Stream Generation Template Use streams applicable by book class for fixed rate contracts.
Actual Income Accrual as a dependent of Rent
Daily Interest - Interest as a dependent of Rent
Daily Interest - Principal as a dependent of Rent
Excess Interest Paid as a dependent of Rent
Excess Loan Payment Paid as a dependent of Rent
Excess Principal Paid as a dependent of Rent
Unscheduled Loan Payment as a dependent of Rent
Unscheduled Principal Payment as a dependent of Rent
Variable Loan Payment as a dependent of Rent
Validations Stream Generation Template Stream generation source must be External.
Accounting Templates Accounting Template Set Use streams applicable by book class for fixed rate contracts.
Actual Income Accrual for transaction type Accrual
Daily Interest - Interest for transaction type Receipt Application
Daily Interest - Principal for transaction type Receipt Application
Variable Loan Payment for transaction type Billing
Unscheduled Loan Payment for transaction type Billing
Unscheduled Principal Payment for transaction type Billing
Quality Values Financial Product Book Classification is Loan. Tax Owner is Lessee. Interest Calculation Basis is Reamort. Revenue Recognition Method is Actual.
Accrual Streams Financial Product Actual Income Accrual
Validations Financial Product Quality values must match the stream generation template.

Procedures

When processing a reamortization on a rate change for a variable rate loan on rate change with principal reduction on receipt of cash, complete the procedures in the following table.

Procedure Description
1. Create Contract See Contract Authoring.
2. Associate Financial Product with correct Quality Values See Define Financial Product.
3. Define Applicable Interest Rate Parameters See Create Interest Rate Details.
4. Activate the Contract See Contract Authoring.
5. Run the Variable Rate Billing process Create Receivables Variable Rate Invoices.
Revised payments are calculated if interest rate has changed.
Contract is rebooked after applying the revised payments.
6. Run Bill Processing Program Set See Processes.
7. Run Generate Accruals Process Generate Accruals - Actual
Streams defined for accrual are accounted as revenue.
8. Create Receipts See Receipts and Invoices.
9. Run Daily Interest Calculation Program See Processes.
10. Terminate Expired Contracts Daily Interest Calculation must be completed prior to termination or expiration of contract.

Contract Transactions

The following table shows what contract transactions are allowed for a reamortization contract on rate change with principal reduction on receipt of cash.

Transaction Conditions
Rebook Current dated and prospective changes are permitted to interest rate parameters.
Principal Paydown Permitted
Loan Paydown Permitted
Termination Early and Partial terminations are allowed.
Lease Center Non-financial updates can be made.

Catchup Interest on a Separate Schedule to Regular Billing

Periodic payments are defined on the contract. Principal payment, Interest payment, and Income Accrual streams are generated at the time of booking the contract. Principal and Interest are billed on Principal schedule and Interest schedule respectively. Actual principal balance is used as the basis of catchup calculation. The Income Accrual stream is used to accrue the estimated interest at the end of each month. The actual interest is calculated on the catchup frequency and difference between the estimated and billed amount can be refunded, adjusted or not adjusted against principal if in excess, or billed if the interest was short.

Overview

The following table describes contract conditions for Catchup Interest on a Separate Schedule to Regular Billing.

Catchup Interest on a Separate Schedule to Regular Billing
Contract Conditions Description
Applicability Loans
Rate Change Interest rate shall change based on the index and contract setup.
Process Billing is done on the original schedule.
Interest rate changes are calculated on a separate schedule.
Billing Billing is done from schedule for principal and other streams.
Interest rate changes are billed on the catchup frequency.
Cash Cash is applied to invoices.
Revenue Revenue is recognized based on income streams generated.
Interest rate changes are calculated and billed and also accounted as income.
Interest Calculation Basis Catchup/Cleanup
Revenue Recognition Method Streams

Setup

Setup steps must be completed before variable rate contracts can be processed. The following table describes setup requirements for Catchup Interest on a Separate Schedule to Regular Billing.

Setup Steps for Catchup Interest on a Separate Schedule to Regular Billing
Setup Step Location/Link Description
Stream Purpose Stream Types Use streams applicable by book class for fixed rate contracts.
Interest Catchup - for billing calculated interest amounts.
Principal Catchup - for adjusting principal amounts.
Unscheduled Principal Payment - for principal paydown.
Pricing Method Stream Generation Template External only
Book Classification Stream Generation Template Loans
Tax Owner Stream Generation Template As applicable
Interest Calculation Basis Stream Generation Template Catchup/Cleanup
Revenue Recognition Method Stream Generation Template Streams
Primary Stream Generation Template Use streams applicable by book class for fixed rate contracts.
Dependent Stream Generation Template Use streams applicable by book class for fixed rate contracts.
Interest Catchup as a dependent of Rent.
Principal Catchup as a dependent of Rent.
Unscheduled Principal Payment as a dependent of Rent.
Validations Stream Generation Template Stream generation source must be External.
Accounting Templates Accounting Template Set Use streams applicable by book class for fixed rate contracts.
Interest Catchup for transaction type Billing.
Principal Catchup for transaction type Billing.
Unscheduled Principal Payment for transaction type Billing.
Quality Values Financial Product Book Classification is Loan. Tax Owner is Lessee. Interest Calculation Basis is Catchup/Cleanup. Revenue Recognition Method is Streams.
Accrual Streams Financial Product Revenue is recognized based on income streams generated. Interest Catchup is billed and also accounted as income.
Validations Financial Product Quality values must match the stream generation template.

Contract Details

Procedures

When you process variable rate contracts for Catchup Interest on a Separate Schedule to Regular Billing loan, complete the procedures in the following table.

Procedure Description
1. Create Contract See Contract Authoring.
2. Associate Financial Product with correct Quality Values See Define Financial Product.
3. Define Applicable Interest Rate Parameters Create Interest Rate Details.
4. Activate the Contract See Contract Authoring.
5. Run the Bill Processing Program Set See Billing.
6. Run the Variable Rate Billing process Create Receivables Variable Rate Invoices.
Interest adjustment amount is calculated, billed, and stored as a stream.
7. Run the Generate Accruals process Generate Accruals - Streams. Streams defined for accrual are accounted for as revenue.
8. Terminate Expired Contracts Variable rate processing must be completed prior to termination or expiration of contract.

Contract Transactions

The following table shows what contract transactions are allowed for a variable rate contract with Catchup Interest on a separate schedule.

Transaction Conditions
Rebook Current dated and prospective changes are permitted to interest rate parameters.
Current dated and prospective changes are permitted to additional interest rate parameters.
Principal Paydown Permitted
Loan Paydown Not applicable
Termination Early and Partial terminations are allowed.
Lease Center Non-financial updates can be made.

Contract Authoring and Variable Rate

To add variable rate interest details to a contract, see Create Interest Rate Details.

Variable Rate Billing

For information on variable rate billing, see Variable Rate Billing.

Rebook and Variable Rate

Some interest rate details cannot be updated upon the online rebook of a contract. The following table shows the interest rate details that can or cannot be updated for online rebook.

Online Rebook Interest Rate Details
Updateable Field Field That Cannot Be Updated
Interest Index Base Rate
Adder Rate Interest Start Date
Maximum Rate Principal Basis
Minimum Rate Days in a Month
Interest Basis Days in a Year
Rate Delay Catchup Start Date
Rate Delay Frequency Catchup Frequency
Rate Change Frequency Catchup Settlement
Rate Change Tolerance Rate Change Start Date

The following table describes what online rebook changes are permitted for different interest rate scenarios.

Permitted Changes for Online Rebook Interest Rate Contracts
Book Classification Interest Calculation Basis Conditions
Operating Lease, Direct Finance Lease, Sales Type Lease Fixed, Float Factors Effective date of change should be after the effective date of current interest rate details.
Operating Lease, Direct Finance Lease, Sales Type Lease Reamort Changes are permitted before contract has been rebooked, or before the first interest processing.
Loan Fixed, Float, Catchup/Cleanup Effective date of change should be after the effective date of current interest rate details.
Loan Reamort Changes are permitted before contract has been rebooked, or before the first interest processing.
Revolving Loan Float Effective date of change should be after the effective date of current interest rate details.