D.4 Account Acceleration and Reversal with ‘Principle First’ adjustment
Consider a loan account with following details:
- Contract Date = 01. Jan 2017
- Contract Maturity Date = 31.Dec 2017
- Rate = 4.99%
- Term = 12 Months
Balances before Account Acceleration for a Pre-Compute loan.
Table D-3 Pre-Compute
| Type | Posted | Paid | Waived | Adjusted | Balance |
|---|---|---|---|---|---|
|
ADV/INT (Pre-compute) |
12300 (12000 + 300) |
- | - | - | 11900 |
Acceleration Transaction (PC 2 SI)
- Txn Date = 16.Aug. 2017
- Reschedule St Dt = 01.Sep. 2017
- Amount = 11900
- Rate = 4.99
- Term = 1
Principal Adjustment - Minus Transaction
With Interest Estimated Amount = 300
Interest Adjustment - Plus Transaction
Estimated Interest - Rebate = 300-90 = 210
On posting of Acceleration Txn following transactions would be posted on account:
- Txn 1 - PC 2SI (with about values) = 0
- Txn 2 - Interest Rebate = 90$(Assumed number) - Pass 11900 for rebate calculation
- Txn 3 - New Principal Adjustment Txn = Outstanding Principal = 11900
- Txn 4 - Post 'Principal Adjustment minus = 300'
- Txn 5 - Post 'Interest Adjustment Plus = 210'
Balances after posting Acceleration transaction.
Table D-4 Acceleration transaction
| Type | Posted | Paid | Waived | Adjusted | Balance |
|---|---|---|---|---|---|
| ADV | 11900 | 0 | 0 | Principle adjustment minus = 300 | 11600 |
|
ADV/ INT (Pre-compute) |
12300 |
490 (400 + 90) |
0 | 0 | 0 |
| INT | 0 | 0 | 0 | Interest adjustment plus = 210 | 210 |
Since payment is received after acceleration (i.e. same day), there is no additional interest accrual).
In case payment is received of $350 subsequently on account acceleration (Interest adjustment spread).
Table D-5 Interest adjustment
| Type | Posted | Paid | Waived | Adjusted | Balance |
|---|---|---|---|---|---|
| ADV | 11900 | 140 | 0 | -300 | 11460 |
|
ADV/ INT (Pre-compute) |
12300 |
490 (400 + 90) |
0 | 0 | 0 |
| INT | 0 | 210 | 0 | 210 | 0 |
Reversal of Account Acceleration after above Payment posting
Transactions are reversed / posted on account automatically.
- Reverse Txn 6 - Payment of $350
- Reverse Txn 5 - Interest Adjustment Plus = 210
- Reverse Txn 4 - Principal Adjustment minus = 300
- Reverse Txn 3 - New Principal Adjustment Txn
- Reverse Txn 2- Interest Rebate
- Reverse Txn 1- PC 2 SI
- Re-post - Txn 6 - Payment
Balances after reversal
Table D-6 Balances after reversal
| Type | Posted | Paid | Waived | Adjusted | Balance |
|---|---|---|---|---|---|
|
ADV/INT (Pre-compute) |
12300 |
750 (400 + 350) |
0 | 0 | 11550 |
Parent topic: Appendix : Account Acceleration