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Amortization Methods |
  
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Navigation: Loans > Loan Screens > Insurance Screen Group > Policy Detail Screen > Finance Charge Information tab >
Amortization Methods
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Amortization Methods |
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The Amortization Method field displays the method used to amortize the finance charge on the insurance policy, if applicable. This field is usually populated when loans are originated or when insurance policies are force placed (see the Force Place help).
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Note: If Institution Option IHGL is enabled, the Force Place Insurance transaction (e.g., Force Place LPD (tran code 2870-71), Force Place VSI (tran code 2870-00), etc.) will set this field to "2-Level Yield 2." |
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Possible selections in this field are as follows:
Method |
Description |
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1 - Straight Line |
The straight line method (code 1) is the default. It is calculated as follows:
Original Finance Charge / TERM x MONTHS
TERM = The term of the insurance policy.
MONTHS = The number of months from the date the finance charge was last amortized to the present date. Normally this is one month. |
2 - Level Yield 2 |
The calculation for Level Yield 2 normally requires a monthly payment frequency, but this amortization code can be modified to work with weekly, bi-weekly, and semi-monthly frequencies as well (contact GOLDPoint Systems for more information). This method will always amortize the amount of the finance charge at monthend regardless of the selected frequency, but it will amortize the number of frequencies elapsed. (Please note that there is an institution option that will affect the amortization. In essence, this option amortizes one month's worth of amortization on the anniversary of the open date. In addition, it amortizes one month of finance charges again on the open date. See Institution Option LDYL below for more information.)
Note: Amortization will cease if the loan is past due by at least the number in institution option NPDY and institution option SAIC (stop insurance commission amortization if delinquent) is set to "Y."
The steps for this calculation are as follows:
1.The original amount of the finance charge is "ORIG." This is used at the end of the calculations to determine what percentage of all the finance charges belong to the earned amount that is being calculated.
2.Figure the first of next month (NXTMON). The calculation will amortize to this date. (Unless Institution Option LDYL is used (see below).)
3.Get the original term (LNTRMO) of the loan (ORIGTERM).
5.Figure the first of the month after the date opened (FRSTMON). For example, if the date opened (LNOPND) was 11/17/2016; the program uses 12/01/2016.
6.Figure the end of the month of the date opened (OPNDME). If the date opened (LNOPND) was 12/17/2010; the program uses 12/31/2010.
Now we are ready to figure the first month of amortization (FRSTAMRT). This is the month of the date opened when LN78EI is "N" or EXTINT is equal to zero. If this is the case, FRSTAMRT = LNOPND (forced to the first of the month) and you can jump to step 12. Otherwise, continue to the next step.
7.Figure the number of days from the date opened (LNOPND) to (LN1DUE) using a 360 days base.
8.Subtract 30 from this number to get the extension interest days (EXTDAYS).
9.Add this result to the date opened (LNOPND) using a 365-days base to get the date opened plus extension days date (OPNEXT). This date is forced to the first of the month and becomes our possible first amortization date (FRSTAMRT).
10.Get the month of OPNEXT (DFMM) and the month of LN1DUE (DSMM). If the years of these dates are not the same, add 12 to DSMM, else continue.
11.Subtract DFMM from DSMM. If the answer is greater than 1, then FRSTAMRT = OPNEXT + 1 month, else FRSTAMRT = OPNEXT. FRSTAMRT is forced to the first of the month.
The date of first amortization cannot be greater than the date for which we are running (both are forced to the first of the month for this compare). Normally, the amortization selection program has decided this and it does not arrive at this point in the amortization process. If, however, an account slips by, it will be rejected and nothing is earned. Otherwise, we continue on with the process of preparing for the amortization.
12.Figure the partial month days for loans with extension interest (LN78EI = "Y" and EXTINT not equal to zero). If the loan does not have extension interest, then you can skip to the next step. Otherwise, it is figured by:
•Subtracting 30 days from LN1DUE using 365-days as the base. •Figure the days between this date and the first of the month of the first due date (LN1DUE) using a 360 days base. •This answer becomes the partial month days (PARTDAYS). •Skip to step 14.
13.Figure the partial month days for loans without extension interest (LN78EI = "N" and EXTINT equal to zero). This is done by doing the following:
•Figure the number of days difference from the date opened (LNOPND) and the first of next month (FRSTMON) using 360 days as a base. •This answer becomes the partial month days (PARTDAYS).
14.Figure the remaining days (REMDAYS) by subtracting the partial days from 30. REMDAYS = 30 – PARTDAYS 15.Calculate the P/I constant (PICN) to use in the amortization. If LN78EI = Y then: Figure the number of days from OPNDME to LN1DUE using 360 days as the base. If this answer is greater than 30, add 1 to ORIGTERM to the term (OTERM) used in the P/I calculation. If LN78EI = N then: Use ORIGTERM as the term (OTERM) in the P/I calculation. The P/I constant is equal to the amortizing balance (LN78AB) divided by the term. 1.Calculate the rate (JRATE) for the amortization to 7 decimal places. This uses our normal rate calculation routine using these variables: The original principal (LN78OP). A payment frequency of 1. The term in OTERM. The P/I constant in PICN. The approximate EXCEL equivalent of the formula is: JRATE = Rate(term,-LNOPIC,LN78OP) * 12 1.Figure the first month in which a whole month’s amortization will occur by adding one month to the first month of amortization (FRSTAMRT) and forcing that date to the first of the month.
2.Using this date, figure the number of whole months (#MONTHS) to the first of the next month (NXTMON).
3.Calculate the interest for the partial days. This interest becomes the first of the cumulative interest earned (CUMUINT). The original principal before add-ons (LN78OP) is the balance (BALANCE) used. The formula is:
20.For the rest of the calculation, we divide JRATE by 12 so this doesn’t have to be done each time through the loop. This is our nominal rate (RATE).
We now have all of the information we need to calculate the level yield for the loan. This calculation is done by making pseudo-payments on the loan. The program loops for the number of whole months (#MONTHS) and performs the following calculations:
21.The amount of payment interest (PMTINT) is calculated:
22.The amount of interest prior to the payment in the month is calculated:
23.A new balance is the calculated:
24.The amount of after payment interest (AFTERINT) is calculated on this new balance next:
25.These interest amounts are added to the cumulative interest:
26.The program loops though these calculation for #MONTHS times.
When the looping is complete, CUMUINT has the amount of interest earned. The program then performs calculations to extract the earnings for the original amount (ORIG) as a percentage of all finance charges.
27.The percentage is calculated by:
28.The earned amount (EARNED) is calculated by multiplying the cumulative interest by this percentage. This amount cannot be greater than the original amount.
29.The unearned amount is calculated by subtracting the earned amount from the original amount.
30.This new unearned amount is subtracted from the unearned amount on file to figure the amount earned this month. This is done to keep the G/L in sync with the file. |
3 - Take All in First Month |
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4 - Interest FASB 91 |
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5 - Constant Yield |
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6 - Level Yield |
This calculation amortizes the finance charge amount every month until the finance charge amount is fully amortized at maturity or the loan becomes non-performing.
Note: Amortization will cease if the loan is past due by at least the number in institution option NPDY and institution option SAIC (stop insurance commission amortization if delinquent) is set to "Y." Or if the following items apply to the account:
•Action Code 23 - Loan locked for Payoff •Action Code 39 - Stop fees and cost amortization up to Action Date •Hold Code 4 or 5 (Bankruptcy) •Hold Code 60 - Account Frozen •The account is released (LNRLSD = Yes) •The • The calculation for Level Yield normally requires a monthly payment frequency, but this amortization code can be modified to work with weekly, bi-weekly, and semi-monthly frequencies as well (contact GOLDPoint Systems for more information). This method will always amortize the amount of the finance charge at monthend regardless of the selected frequency, but it will amortize the number of frequencies elapsed. (Please note that there is an institution option that will affect the amortization. In essence, this option amortizes one month's worth of amortization on the anniversary of the open date. In addition, it amortizes one month of finance charges again on the open date. See Institution Option LDYL below for more information.)
The steps for this calculation are as follows:
1.The original amount of the finance charge is "ORIG." This is used at the end of the calculations to determine what percentage of all the finance charges belong to the earned amount that is being calculated.
2.Figure the first of next month (NXTMON). The calculation will amortize to this date. (Unless Institution Option LDYL is used (see below).)
3.Get the original term (LNTRMO) of the loan (ORIGTERM).
5.Figure the first of the month after the date opened (FRSTMON). For example, if the date opened (LNOPND) was 11/17/2016; the program uses 12/01/2016.
6.Figure the end of the month of the date opened (OPNDME). If the date opened (LNOPND) was 12/17/2010; the program uses 12/31/2010.
Now we are ready to figure the first month of amortization (FRSTAMRT). This is the month of the date opened when LN78EI is "N" or EXTINT is equal to zero. If this is the case, FRSTAMRT = LNOPND (forced to the first of the month) and you can jump to step 12. Otherwise, continue to the next step.
7.Figure the number of days from the date opened (LNOPND) to (LN1DUE) using a 360 days base.
8.Subtract 30 from this number to get the extension interest days (EXTDAYS).
9.Add this result to the date opened (LNOPND) using a 365-days base to get the date opened plus extension days date (OPNEXT). This date is forced to the first of the month and becomes our possible first amortization date (FRSTAMRT).
10.Get the month of OPNEXT (DFMM) and the month of LN1DUE (DSMM). If the years of these dates are not the same, add 12 to DSMM, else continue.
11.Subtract DFMM from DSMM. If the answer is greater than 1, then FRSTAMRT = OPNEXT + 1 month, else FRSTAMRT = OPNEXT. FRSTAMRT is forced to the first of the month.
The date of first amortization cannot be greater than the date for which we are running (both are forced to the first of the month for this compare). Normally, the amortization selection program has decided this and it does not arrive at this point in the amortization process. If, however, an account slips by, it will be rejected and nothing is earned. Otherwise, we continue on with the process of preparing for the amortization.
12.Figure the partial month days for loans with extension interest (LN78EI = "Y" and EXTINT not equal to zero). If the loan does not have extension interest, then you can skip to the next step. Otherwise, it is figured by:
•Subtracting 30 days from LN1DUE using 365-days as the base. •Figure the days between this date and the first of the month of the first due date (LN1DUE) using a 360 days base. •This answer becomes the partial month days (PARTDAYS). •Skip to step 14.
13.Figure the partial month days for loans without extension interest (LN78EI = "N" and EXTINT equal to zero). This is done by doing the following:
•Figure the number of days difference from the date opened (LNOPND) and the first of next month (FRSTMON) using 360 days as a base. •This answer becomes the partial month days (PARTDAYS).
14.Figure the remaining days (REMDAYS) by subtracting the partial days from 30. REMDAYS = 30 – PARTDAYS 15.Calculate the P/I constant (PICN) to use in the amortization. If LN78EI = Y then: Figure the number of days from OPNDME to LN1DUE using 360 days as the base. If this answer is greater than 30, add 1 to ORIGTERM to the term (OTERM) used in the P/I calculation. If LN78EI = N then: Use ORIGTERM as the term (OTERM) in the P/I calculation. The P/I constant is equal to the amortizing balance (LN78AB) divided by the term. 1.Calculate the rate (JRATE) for the amortization to 7 decimal places. This uses our normal rate calculation routine using these variables: The original principal (LN78OP). A payment frequency of 1. The term in OTERM. The P/I constant in PICN. The approximate EXCEL equivalent of the formula is: JRATE = Rate(term,-LNOPIC,LN78OP) * 12 1.Figure the first month in which a whole month’s amortization will occur by adding one month to the first month of amortization (FRSTAMRT) and forcing that date to the first of the month.
2.Using this date, figure the number of whole months (#MONTHS) to the first of the next month (NXTMON).
3.Calculate the interest for the partial days. This interest becomes the first of the cumulative interest earned (CUMUINT). The original principal before add-ons (LN78OP) is the balance (BALANCE) used. The formula is:
20.For the rest of the calculation, we divide JRATE by 12 so this doesn’t have to be done each time through the loop. This is our nominal rate (RATE).
We now have all of the information we need to calculate the level yield for the loan. This calculation is done by making pseudo-payments on the loan. The program loops for the number of whole months (#MONTHS) and performs the following calculations:
21.The amount of payment interest (PMTINT) is calculated:
22.The amount of interest prior to the payment in the month is calculated:
23.A new balance is the calculated:
24.The amount of after payment interest (AFTERINT) is calculated on this new balance next:
25.These interest amounts are added to the cumulative interest:
26.The program loops though these calculation for #MONTHS times.
When the looping is complete, CUMUINT has the amount of interest earned. The program then performs calculations to extract the earnings for the original amount (ORIG) as a percentage of all finance charges.
27.The percentage is calculated by:
28.The earned amount (EARNED) is calculated by multiplying the cumulative interest by this percentage. This amount cannot be greater than the original amount.
29.The unearned amount is calculated by subtracting the earned amount from the original amount.
30.This new unearned amount is subtracted from the unearned amount on file to figure the amount earned this month. This is done to keep the G/L in sync with the file. |
7 - Daily Level Yield |
