| Redress Manager 2023 Set Balances Adjustments |
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Traditionally Lenders deploy two methods when running calculations:
- Balance used for interest calculations
- Balance used for payments
In a standard calculation, the Balance used for interest (1) is the balance either at the start of the mortgage, at the end of the year or on a monthly basis.
For repayment calculations, the Balance used for payments (2) is the balance at the start of the mortgage or at end of the previous period end. For interest only mortgages, the balance used for calculations is the same as (1).
Example B1
Loan 50,000 Interest Rate 10%
January 2001 31 days interest = 424.66
Payment = 416.67
The three new balance adjustments are as follows (v2.3 (0005)):
- Interest Balance
- Payment Balance
- Working Balance
If we applied the ‘interest balance’ (1) to the example A1, we would see the following effect:
Example B2
Loan 50,000 Interest Rate 10%
Set Interest Balance 40,000
January 2001 31 days interest = 339.73
Payment = 416.67
As we can see, the interest charged has changed but the payment has remained the same.
We could have set the ‘interest balance’ to -10,000, which would have the same effect (deduct 10,000 from current balance). Note the difference when using a negative value is that in the example given, for the next month the actual balance would be different and the balance used would be -10,000 from that balance (e.g. if the Balance increased to 51,100 then the interest balance would be 40,100). Note: On the printed / file output when an equal sign ‘=’ is shown, this indicates a positive value was entered.
If we applied the ‘payment balance’ (2) to example A1, we would see the following effect:
Example B3
Loan 50,000 Interest Rate 10%
Set Payment Balance 40,000
January 2001 31 days interest = 424.66
Payment = 333.33
As we can see, the interest charged has stayed the same but the payment has reduced based on the lower payment balance.
We could have set the ‘payment balance’ to -10,000, which would have the same effect (deduct 10,000 from current balance). Note the difference when using a negative value is that in the example given, for the next month the actual balance would be different and the balance used would be -10,000 from that balance (e.g. if the Balance reduced to 49,900 then the payment balance would be 39,900 but would only affect the payment if the payment was due to be recalculated). Note: On the printed / file output when an equal sign ‘=’ is shown, this indicates a positive value was entered.
If we applied the ‘working balance’ (3) to the example A1, we would see the following effect:
Example B4
Loan 50,000 Interest Rate 10%
Set Working Balance 40,000
January 2001 31 days interest = 339.73
Payment = 333.33
As we can see, the interest and payments have reduced based on the lower working balance. This is a combination of both the ‘interest balance’ (1) and the ‘payment balance’ (2).
We could have set the ‘working balance’ to -10,000, which would have the same effect (deduct 10,000 from current balance). Note the difference when using a negative value is that in the example given, for the next month the actual balance would be different and the balance used would be -10,000 from that balance (e.g. if the Balance reduced to 49,900 then the working balance would be 39,900 but this would only affect the payment made if the payment was due to be recalculated). Note: On the printed / file output when an equal sign ‘=’ is shown, this indicates a positive value was entered.
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