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The interest calculation process determines the amount of interest accrued for each active recovery account and repayment plan with a non-zero balance. The system also provides the ability to recalculate interest on recovery accounts and repayment plans and when variable interest rates have changed.

Prerequisites

The following items must be configured in order for the system to correctly calculate interest:

• An active recovery account
• An active repayment plan (optional)
• At least one accounting rule for each recovery account and repayment plan

The accounting rule must be active for the date that interest is calculated.

• Parameters in the Recovery page (System Management > Modules > Recovery)
  • Default Calculation Method
  • GL Account Delimiter
  • Calculate Interest Pre Creation Date
  • Calculate Negative Interest
• A GL Offset account used to offset interest
• A GL Account that is used to track interest and is associated with the GL Offset account
• A Transaction Code with a Transaction Code Category of Interest and at least one posting rule that allocates funds to the GL Account

Interest Calculation Interfaces

The interest calculation process can be executed manually within the workspace by a user or automatically through a nightly batch executable.

Manual Execution

The Recalculate Interest button allows users with the appropriate permission to initiate real-time interest calculations on recovery accounts and repayment plans.

Automatic Execution

The Calculate All Interest (Akcelerant.AccountServicing.Exe.ComputeRecoveryInterest) nightly batch executable automatically calculates daily interest for all eligible recovery accounts and repayment plans. A recovery account or repayment plan is considered eligible for interest calculation if the Interest Last Calculated field does not contain today's date (i.e. interest has not yet been calculated today). The Interest Last Calculated field is set on recovery accounts and repayment plans each time the Calculate All Interest executable runs and successfully calculates interest for the recovery account or repayment plan.

Interest Calculation Algorithms

The system calculates both Annual Interest Rates and Daily Interest Rates for recovery accounts and repayment plans.

Annual Interest Rate

To calculate annual interest, the system locates the active accounting rule (indicated by the Active flag on the Recovery Account and Repayment Plan Interest Rates panels) for the recovery account or repayment plan, and then reviews the flags on the accounting rule that indicate which top-level GL forward accounts (Principal, Reimbursable Expense, Non-reimbursable Expense, etc.) are included in interest accrual calculations.

If the Is Variable Rate flag is set to true for the active accounting rule, the system uses a variable interest rate. The effective interest rate for the Interest Rate Type Id defined for the accounting rule is used to calculate interest. In this scenario, the annual interest rate equals the host interest rate plus the accounting rule interest rate modifier.

If the Is Variable Rate flag is set to false for the active accounting rule, the system uses a fixed interest rate. In this scenario, the annual interest rate equals the fixed interest rate defined in the accounting rule.

Once defined, the dates the annual interest rate is valid from and to are populated within the Interest Rates screen.

Daily Interest Rate

Once the annual interest rate is determined, one of the following methods are used to define the daily interest rate:

Method	Description
Actual/Actual	Calculates the Daily Interest Rate using the following equation: Current Principal * ((Interest Rate/100)/Number of days in the calendar year) This calculation method is the most accurate.
Actual/360	Calculates the Daily Interest Rate using the following equation: Current Principal * ((Interest Rate/100)/360)
Actual/365	Calculates the Daily Interest Rate using the following equation: Current Principal * ((Interest Rate/100)/365)

After daily interest is calculated, the rate is sent to the Transaction Processing Manager for processing and creation of Recovery Ledger entries based on Transaction Codes.

Interest Calculation Results

The following are characteristics of interest calculated within the Recovery module:

• For both annual and daily calculations, the interest rate is stored as a percentage. For example, 3% interest is stored as 3.00, not 0.03.
• All money values are considered to be generic currency; no currency indicator is stored in the system, and all money values are displayed to two decimal places.

While money values are displayed as two decimal places, four decimal places are stored in the database. Money values greater than four decimal places are rounded to four decimal places using the industry standard "To Even" rounding algorithm, which is the default algorithm used by the Microsoft .NET Math.Round method.

Recalculating an Interest Rate

Temenos Infinity's interest rate change process recalculates interest on recovery accounts, repayment plans, and variable interest rates to ensure the correct amount of interest exists on recovery accounts and repayment plans. The interest rate change process occurs when a user changes an accounting rule on the Recovery Account or Repayment Plan Interest Rates panels and when an administrator modifies an interest rate in Interest Administration. 

Process to Recalculate Interest on Recovery Accounts and Repayment Plans

After a user makes a manual change to an interest rate on a recovery account or repayment plan or if they notice the Calculation Pending flag is set to true, clicking  on the Recovery Account or Repayment Plan Interest Rates panels launches the ad-hoc interest rate change process.

The interest rate change process for recovery accounts and repayment plans is illustrated and described as follows:

Process to Recalculate Variable Interest Rates

After an administrator makes a change to an interest rate on the Interest Administration page, the nightly Compute Recovery Interest processing launches the interest rate change process.

The interest rate change process for variable interest rates is illustrated and described as follows:

 

• The process to recalculate interest on variable rates begins by determining the date of the interest rate change based on the Calculation Pending flag.

The Calculation Pending flag is automatically set when a change is made to an interest rate in Interest Administration.

• The process finds all accounts that use the interest rate that have balances eligible for interest accrual.
• For each account that is identified, the following processing occurs:
  • The account is locked to prevent it from being edited.
  • All transactions that have occurred since the date of the interest rate change are stored in the database.
  • All transactions that have occurred since the date of the interest rate change are reversed.
  • All transactions, including interest transactions, that have occurred since the date of the interest rate change are reprocessed.

The current date is used as the posting date for all reversal and reprocessed transactions. The transaction codes and GL accounts that were applied in the initial transactions are used for the reversal and reprocessed transactions.

Reprocessing transactions may cause any payments applied to appear different in the GL account due to more or less interest being accrued.

• • The account is unlocked to allow normal transaction processing to resume.
• When all accounts have been processed, the Calculation Pending flag is set to false for the interest rate.

 

 

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