Interest Repayment Schedules

7.9.5 Interest Repayment Schedules

This section explains about interest repayment schedules as different from rate revision schedules.

For a loan on which floating interest has to be applied at periodic intervals, you may have to define:

An interest rate revision schedule for the interest component.
A repayment schedule

The following example shows how this is achieved.

Example

You have a loan where for the component interest, you have to define an interest rate revision schedule for revisions every week as well as a monthly repayment schedule. The Start Date of the contract is 1 October 1997 and the End Date is 30 November 1997.

The contract has been defined with a periodic rate and the rates in the floating rate table change in the following manner:

Date	Rate
1 October 1997	12
12 October 1997	11.5
25 October 1997	11
15 November 1997	12
30 November 1997	12.5

Defining a frequency based rate revision schedule

To define a schedule with periodic rate code usage, through the Contract Schedules screen, mark the component as a revision schedule (by checking the Rev box) and specify the component, say INTEREST, from the drop-down list.

Give the frequency at which the interest rate has to be refreshed, say weekly. Give the Start Date, as 15 October. The first revision happens on this day, and every week from then on. Save the inputs.

Defining a date based rate revision schedule

If you were to define specific dates - 7 October, 15 October and 23 October - for the rate revisions to happen, then, through the Contract Schedules screen, mark the component as a revision schedule (by checking the Rev box) and specify the component, say INTEREST, from the drop-down list.

Specify the date on which the rate revision is to be done, in the Start Date field, as 7 October. Similarly, define the other dates, but by picking up the same component INTEREST from the drop-down list each time.

Defining a repayment schedule for the same component

Now to define a repayment schedule for the same component, INTEREST, do not check the Rev box. Choose the same component from the drop-down list. Now draw up a repayment schedule for this component. Give a value in the Start Date field, say 31 October 1997. The first interest liquidation is done on this date.

In the frequency field enter Monthly and in the unit field specify 1. This means the interest repayments are done once a month beginning 31 October.

That is, for a contract defined with frequency-based periodic rates, the rates prevailing on the refresh dates are used for accruals and liquidation.

In the contract we are discussing, with the refresh frequency defined as weekly and the Start Date as 15 October, the rate applied for the interest liquidation on 31 October is as follows:

From	To	Rate
1 October	15 October	11.5
16 October	31 October	11

For a contract defined with date-based Periodic rates, the rates prevailing on the specific refresh dates are used for accruals and liquidation. Shown below are the rates applicable on the specified revision dates:

Revision Date	Rate Applicable
7 October	12
15 October	11.5
23 October	11.5

In the contract we are discussing, the rates applied for the interest liquidation on 31 October is as follows:

From	To	Rate
1 October	7 October	12
8 October	14 October	12
15 October	31 October	11.5

Parent topic: Revision and Repayment Schedules