annual percentage rate (apr) calculation - schwab rt product resource center/resource... · annual...

Schwab RT® SQL Recordkeeping Operations Library Annual Percentage Rate (APR) Calculation

Updated for SQL Release 2.3

Schwab Retirement Technologies® Recordkeeping Operations Library

Annual Percentage Rate (APR) Calculation

APR 12/12/2006 Schwab Retirement Technologies™ of 28

Schwab RT Recordkeeping Operations Library


December 12, 2006

Copyright 2006 by Schwab Retirement Technologies, Inc., a wholly-owned subsidiary of The Charles Schwab Corporation and an affiliate of Charles Schwab & Co., Inc.

Information in this document is subject to change without notice. No part of this document can be reproduced or transmitted in any form or by any means, electronic or mechanical, for any purpose without the express written permission of Schwab Retirement Technologies, Inc.

For further information, contact Schwab Retirement Technologies, Inc. at 13925 Ballantyne Corporate Place, Suite 300, Charlotte, NC 28277, USA, Tel: (800)-628-2416, Web site: schwabRT.com.

Schwab RT Administration Solutions™ is the property of Schwab Retirement Technologies, Inc., a wholly-owned subsidiary of The Charles Schwab Corporation and affiliate of Charles Schwab & Co., Inc.


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Table of Contents The Recordkeeping Operations Library .......................................................................... 4

APR Calculation Overview ........................................................................................... 5

APR Calculation Activation.......................................................................................... 7

Loan Setup with APR.................................................................................................... 8

Loan Consolidation with APR.................................................................................... 10

Loan APR through ADT.............................................................................................. 12

Loan APR in OPI Update ............................................................................................ 13

OPI Refresh APR Update............................................................................................ 14

Loan APR in Loan Utilities ......................................................................................... 15

APR in Loan Inquiry.................................................................................................... 16

C203/Loan Payment Maintenance ............................................................................. 19

APR in Schwab RT Web and Call Center .................................................................. 25

Loan Modeling/Request Page (Schwab RT Web)...................................................... 25 Loan Summary Page (Schwab RT Web) ................................................................... 26 Loan Modeling Page (Schwab RT Call Center).......................................................... 27 Loan Summary Page (Schwab RT Call Center)......................................................... 27 Loan Payoff Report (Schwab RT Call Center) ........................................................... 28


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The Recordkeeping Operations Library

The Schwab RT® SQL Recordkeeping Operations Library provides you with topic-specific documents available for recordkeeping system processes. Collectively, these documents comprise Schwab RT’s Recordkeeping System Manual of modular individual topics that can be individually maintained with current information, for on-demand downloading and printing.

Topic-specific documents coordinate with the Recordkeeping online Help system, and overcome printing limitations with on-line html Help pages. Additional technical setup procedures and tips might be included in topic-specifics documentation that is not included in on-line Help. If you are new to Schwab RT you may also want to refer to our Recordkeeping Setup, Options, and Maintenance Reference Guide for overviews of many key SQL Recordkeeping concepts and setup options.


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APR Calculation Overview RK SQL Recordkeeping is enhanced in Release 2.3 to calculate an annual percentage rate for a loan which can then be displayed in any report or screen where a participant’s loan information is displayed. A global setting (Calculate APR) in C282/RK SQL System Maintenance allows the user to determine whether or not the APR displays. The APR calculation includes loan origination setup fees, but in this release do not include loan maintenance fee amounts that are due during the payment life cycle of the loan.

During the loan amortization schedule process, loan payment amounts are determined and payment dates are assigned.

As payment records are created, the system determines if origination fees are to be paid. In a future release payroll enhancements will add the ability to include scheduled fee payment information for the life of the loan.

Any origination fee is added to the loan payment amount in the payment record. Once payment records are created and updated with fee amounts, the adjusted payment records are

then used in the APR calculation. Notes: When submitting a loan, if you override a loan payment amount causing a balloon payment for the last payment, the APR percentage may not be calculated correctly. The APR calculation uses one payment value only, which would not account for the adjustment required by a balloon payment. The format in how the loan interest rate is displayed has changed to a percentage format instead of a rate format. For example, an eight percent interest rate that displayed previously as 0.080 now displays as 8.00%. This change affects all screen displays and reports.


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Note: On the Web, APR percentages display correctly only if the percentage is less than 32% due to V-file limitations. The following modules are modified for this enhancement:

C201 (Loan Maintenance) C206 (Loan Consolidation) C210 (Loan Utilities) C150 (ADT Financial and Synoptic) C552 (OPI Update) C551 (OPI Refresh) C076 (Activity Tracking) C078 (Loan Inquiry) CP07 (Loan Reporting) CSQL (SQL Extract) CTB2 (TBOL)


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APR Calculation Activation The following system level setting on the C282/RK SQL System Maintenance>Process Setup>Loan>Loan Parameters window determines whether the APR is calculated and displayed during loan processing. Under APR Option, select the Calculate APR check box to enable the APR Calculation on loans or clear this check box to disable the calculation. Once you select this option, you can set the number of decimal places (up to 3) for displaying the APR percentage in the APR Precision field.


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Loan Setup with APR If the Calculate APR option is selected in System Maintenance, the C201/Loan Maintenance application uses the APR formula when a participant establishes a loan and saves the percentage in the loan record. The Loan Information Report includes this APR in the detail section under the Periodic Payment Amount.

To calculate the APR for a loan, go to the Add Loans node in Loan Maintenance and do the following:

1. Provide the Plan ID, Participant, Loan Amount, Origination Date, Term in Months, and Payments per Year. (Other fields will default to appropriate values).

2. Click Calculate Payment (where APR is calculated).

3. Submit the loan. The APR percentage is displayed on the Loan Information Report (assuming the Calculate APR option has first been selected in RK SQL System Maintenance). L O A N I N F O R M A T I O N

JOAN DOE 000-00-0008 08108 PLAN 101 MASTER PLAN 100 LOAN IDENTIFICATION 0008005 LOAN TYPE GENERAL ORIGINATION DATE 01/04/2006 FIRST PAYMENT DATE 04/01/2006 TERM IN MONTHS 48 NUMBER OF PAYMENTS PER YEAR 12 INITIAL LOAN AMOUNT 950.00 INTEREST FROM ORIGINATION 0.00 TOTAL AMOUNT AMORTIZED 950.00 INTEREST RATE 0.0850


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INTEREST BASE 360 PERIODIC PAYMENT AMOUNT 23.42 APR ##.#### PAYMENT SELECTION CODE SEMI-MONTHLY LOAN REPAY FEE (PERCENT) 0.00 LOAN SETUP AMOUNT 50.00 TAKE FEE FROM LOAN (Y/N)? YES TOTAL LOAN AMOUNT 1000.00 HIGHEST OUTSTANDING LOAN BALANCE IN THE PREVIOUS 12 MONTHS 4000.00


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Loan Consolidation with APR If the Calculate APR option is selected in System Maintenance, the C206/Loan Consolidation application uses the APR formula when a participant consolidates a loan and saves the percentage in the loan record. The Loan Information Report includes this APR in the detail section under the Periodic Payment Amount. To calculate the APR for a loan consolidation, go to the Establish Loans node in Loan Consolidation and do the following:

1. Provide the Loan ID. (Other fields default to appropriate values).

2. Click Calculate Payment.

3. Submit the loan. The APR percentage is displayed on the Loan Information Report (assuming the Calculate APR option has first been selected in RK SQL System Maintenance).

L O A N I N F O R M A T I O N JOAN DOE 000-00-0005 02278 PLAN 101 MASTER PLAN 100 LOAN IDENTIFICATION 0005004 LOAN TYPE GENERAL ORIGINATION DATE 01/04/2006 FIRST PAYMENT DATE 01/10/2006 TERM IN MONTHS 12 NUMBER OF PAYMENTS PER YEAR 12 INITIAL LOAN AMOUNT 24950.00 INTEREST FROM ORIGINATION 0.00


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TOTAL AMOUNT AMORTIZED 24950.00 INTEREST RATE 0.0850 INTEREST BASE 360 PERIODIC PAYMENT AMOUNT 2176.13 APR ##.#### PAYMENT SELECTION CODE SEMI-MONTHLY LOAN REPAY FEE (PERCENT) 0.00 LOAN SETUP AMOUNT 50.00 TAKE FEE FROM LOAN (Y/N)? YES TOTAL LOAN AMOUNT 25000.00 HIGHEST OUTSTANDING LOAN BALANCE IN THE PREVIOUS 12 MONTHS 11950.00


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Loan APR through ADT If the Calculate APR option is selected in System Maintenance, the C150/ADT application uses the APR formula when a participant establishes a loan and saves the percentage in the loan record. The Amortization Schedule and Loan Information displays the APR. To calculate the APR in ADT, go to the Process Setup node in C150/ADT and do the following:

1. Select the Plan ID and Batch File that includes the originating loan information (Participant, Loan Amount, Origination Date, Term in Months, and Payments per Year).

2. Select an Originating Loan Template.

3. Select Print to print the Amortization Schedule.

4. Process the loan. The APR percentage is displayed with the Loan Information (assuming the Calculate APR option has first been selected in RK SQL System Maintenance).

L O A N I N F O R M A T I O N JOAN DOE 000-00-0008 08108 PLAN 101 MASTER PLAN 100 LOAN IDENTIFICATION 0008005 LOAN TYPE GENERAL ORIGINATION DATE 01/04/2006 FIRST PAYMENT DATE 04/01/2006 TERM IN MONTHS 48 NUMBER OF PAYMENTS PER YEAR 12 INITIAL LOAN AMOUNT 950.00 INTEREST FROM ORIGINATION 0.00 TOTAL AMOUNT AMORTIZED 950.00 INTEREST RATE 0.0850 INTEREST BASE 360 PERIODIC PAYMENT AMOUNT 23.42 APR ##.#### PAYMENT SELECTION CODE SEMI-MONTHLY LOAN REPAY FEE (PERCENT) 0.00 LOAN SETUP AMOUNT 50.00 TAKE FEE FROM LOAN (Y/N)? YES TOTAL LOAN AMOUNT 1000.00 HIGHEST OUTSTANDING LOAN BALANCE IN THE PREVIOUS 12 MONTHS 4000.00


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Loan APR in OPI Update If the Calculate APR option is selected in System Maintenance, the C552/OPI Update application uses the APR formula when a participant establishes a loan on the Web and saves the percentage in the loan record. The Amortization Schedule and Loan Information Report includes the APR. To calculate the APR in OPI Update when a participant establishes a loan, go to the Process Setup window in C552/OPI Update and do the following. Paperless loan functionality is available:

1. Select Print to print the Amortization Schedule.

2. Process the loan. The APR percentage is displayed with the Loan Information (assuming the Calculate APR option has first been selected in RK SQL System Maintenance).

L O A N I N F O R M A T I O N JOAN DOE 000-00-0008 08108 PLAN 101 MASTER PLAN 100 LOAN IDENTIFICATION 0008005 LOAN TYPE GENERAL ORIGINATION DATE 01/04/2006 FIRST PAYMENT DATE 04/01/2006 TERM IN MONTHS 48 NUMBER OF PAYMENTS PER YEAR 12 INITIAL LOAN AMOUNT 950.00 INTEREST FROM ORIGINATION 0.00 TOTAL AMOUNT AMORTIZED 950.00 INTEREST RATE 0.0850 INTEREST BASE 360 PERIODIC PAYMENT AMOUNT 23.42 APR ##.#### PAYMENT SELECTION CODE SEMI-MONTHLY LOAN REPAY FEE (PERCENT) 0.00 LOAN SETUP AMOUNT 50.00 TAKE FEE FROM LOAN (Y/N)? YES TOTAL LOAN AMOUNT 1000.00 HIGHEST OUTSTANDING LOAN BALANCE IN THE PREVIOUS 12 MONTHS 4000.00


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OPI Refresh APR Update If the Calculate APR option is selected in System Maintenance, the C551/OPI Refresh application updates OPI Participant Loan Information with the APR percentage attached to loans if a participant has a loan.


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Loan APR in Loan Utilities If the Calculate APR option is selected in System Maintenance, the C210/Loan Utilities application uses the APR formula to reset the APR on an established loan. To reset the APR to zero, regardless of what is currently in the field, go to Select Plans>Reset and select the Reset APR to Zero check box. When selected, the system returns a message: “Reset APR to Zero will replace all previous APR percentages for existing loans to zero. Proceed?”

Use Loan Inquiry to verify the APR calculation. There is no report associated with Loan Utilities.


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APR in Loan Inquiry If the Calculate APR option is selected in System Maintenance, the C078/Loan Inquiry application displays the APR percentage stored in the Loan Record on the View Loan Data window:


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Loan Ledger Reporting If the Calculate APR option is selected in C282/RK SQL System Maintenance, the CP07/Loan Ledger application includes the APR percentage in the Loan Ledger Report, Final Payment, Amortization Report and New Loan Report:


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C203/Loan Payment Maintenance If the Calculate APR option is selected in System Maintenance, the C203/Payment Maintenance application displays the APR percentage stored in the Loan Record in the Loan Information Report’s Loan Detail section under the Periodic Payment Amount:


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Examples of APR Calculation Loan Information

Loan Amount = $1000.00 Loan Fee = $50.00 Interest Rate = 0.0850% Periodic Payment amount = $87.22 Payroll = Monthly Term = 12 months Payment Frequency = 12 per year Origination Date = 08/30/2005 First Payment = 10/01/2005

Payments Per Year is derived as follows: If the Term in months = 12 and the Payment Frequency is <12, then the Payments Per Year = Payment Frequency. If the Term in months > 12, the Payments Per Year = (Term in months * Payment Frequency) / 12 PASS 1 Current Iterative APR = Interest Rate = 0.0850000 Calculate A` Interest Rate per Period = Previous Iterative APR * (1 / Payments Per Year)

Interest Rate Per Period = 0.0850000 * (1 / 12) = 0.0070833 A` Per Payment = (1 / (1 + Interest Rate Per Period) ^ Payment Number) * Payment Amount

PAYMENT INTEREST RATE A` PER TOTAL Date NUMBER PAYMENT PER PERIOD PAYMENT A` --------------------------------------------------------------------------- 08/01/2005 0 50.00 0.0070833 50.0000 50.0000 09/01/2005 0 0.00 0.0070833 0.0000 50.0000 10/01/2005 1 87.22 0.0070833 86.6065 136.6065 11/01/2005 2 87.22 0.0070833 85.9974 222.6039 12/01/2005 3 87.22 0.0070833 85.3925 307.9965 01/01/2006 4 87.22 0.0070833 84.7919 392.7884 02/01/2006 5 87.22 0.0070833 84.1955 476.9839 03/01/2006 6 87.22 0.0070833 83.6033 560.5872 04/01/2006 7 87.22 0.0070833 83.0153 643.6026 05/01/2006 8 87.22 0.0070833 82.4314 726.0340 06/01/2006 9 87.22 0.0070833 81.8516 807.8856 07/01/2006 10 87.22 0.0070833 81.2759 889.1616 08/01/2006 11 87.22 0.0070833 80.7043 969.8658 09/01/2006 12 87.22 0.0070833 80.1366 1050.0025

A` = 1050.0025


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Calculate A`` Interest Rate Per Period = (Previous Iterative APR + .001) * (1 / Payments Per Year)

Interest Rate Per Period = (0.0850000 + .001) * ( 1 / 12 ) = 0.0071667 A`` Per Payment = (1 / (1 + Interest Rate Per Period)^Payment Number) * Payment Amount PAYMENT INTEREST RATE A`` PER TOTAL Date NUMBER PAYMENT PER PERIOD PAYMENT A`` --------------------------------------------------------------------------- 08/01/2005 0 50.00 0.0071667 50.0000 50.0000 09/01/2005 0 0.00 0.0071667 0.0000 50.0000 10/01/2005 1 87.22 0.0071667 86.5994 136.5994 11/01/2005 2 87.22 0.0071667 85.9832 222.5825 12/01/2005 3 87.22 0.0071667 85.3713 307.9539 01/01/2006 4 87.22 0.0071667 84.7639 392.7177 02/01/2006 5 87.22 0.0071667 84.1607 476.8784 03/01/2006 6 87.22 0.0071667 83.5618 560.4403 04/01/2006 7 87.22 0.0071667 82.9672 643.4075 05/01/2006 8 87.22 0.0071667 82.3769 725.7844 06/01/2006 9 87.22 0.0071667 81.7907 807.5751 07/01/2006 10 87.22 0.0071667 81.2087 888.7838 08/01/2006 11 87.22 0.0071667 80.6309 969.4147 09/01/2006 12 87.22 0.0071667 80.0571 1049.4718

A`` = 1049.4718 Formula Current Iterative APR = Previous Iterative APR + 0.001 * ( ( Loan amount - A` ) / ( A`` - A` ) )

Current Iterative APR = 0.0850000 + .001 * ( (1000.0000 - 1050.0025) / (1049.4718 - 1050.0025) ) Current Iterative APR = 0.1792207 Previous Iterative APR = 0.0850000

If (Current Iterative APR - Previous Iterative APR) is greater than or equal to 0.0001, then do another pass.

Since (0.1792207 - 0.0850000) = 0.0942207 and 0.0942207 is greater than or equal 0.0001, another pass will be done.


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PASS 2 Current Iterative APR = Interest Rate = 0.1792207 Calculate A` Interest Rate Per Period = Previous Iterative APR * (1 / Payments Per Year)

Interest Rate Per Period = 0.1792207 * ( 1 / 12 ) = 0.0149351 A` Per Payment = (1 / (1 + Interest Rate Per Period)^Payment Number) * Payment Amount PAYMENT INTEREST RATE A` PER TOTAL Date NUMBER PAYMENT PER PERIOD PAYMENT A` --------------------------------------------------------------------------- 08/01/2005 0 50.00 0.0149351 50.0000 50.0000 09/01/2005 0 0.00 0.0149351 0.0000 50.0000 10/01/2005 1 87.22 0.0149351 85.9365 135.9365 11/01/2005 2 87.22 0.0149351 84.6720 220.6085 12/01/2005 3 87.22 0.0149351 83.4260 304.0345 01/01/2006 4 87.22 0.0149351 82.1983 386.2328 02/01/2006 5 87.22 0.0149351 80.9888 467.2216 03/01/2006 6 87.22 0.0149351 79.7970 547.0186 04/01/2006 7 87.22 0.0149351 78.6228 625.6413 05/01/2006 8 87.22 0.0149351 77.4658 703.1071 06/01/2006 9 87.22 0.0149351 76.3259 779.4330 07/01/2006 10 87.22 0.0149351 75.2027 854.6357 08/01/2006 11 87.22 0.0149351 74.0961 928.7318 09/01/2006 12 87.22 0.0149351 73.0057 1001.7376

A` = 1001.7376 Calculate A``

Interest Rate Per Period = ( Previous Iterative APR + .001 ) * ( 1 / Payments Per Year )


A`` = 1001.2436


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Formula Current Iterative APR = Previous Iterative APR + 0.001 * ( ( Loan amount - A` ) / ( A`` - A` ) )

Current Iterative APR = 0.1792207 + .001 * ( (1000.0000 - 1001.7376) / (1001.2436 - 1001.7376) )

Current Iterative APR = 0.1827384 Previous Iterative APR = 0.1792207

If (Current Iterative APR – Previous Iterative APR) is greater than or equal to 0.0001, then do another pass. Since (0.1827384 - 0.1792207) = 0.0035177, and 0.0035177 is greater than or equal 0.000, another pass will be done. PASS 3 Current Iterative APR = Interest Rate = 0.1827384 Calculate A`

Interest Rate Per Period = Previous Iterative APR * (1 / Payments Per Year)

Interest Rate Per Period = 0.1827384 * (1 / 12) = 0.0152282 A` Per Payment = (1 / (1 + Interest Rate Per Period)^Payment Number) * Payment Amount PAYMENT INTEREST RATE A` PER TOTAL Date NUMBER PAYMENT PER PERIOD PAYMENT A` --------------------------------------------------------------------------- 08/01/2005 0 50.00 0.0152282 50.0000 50.0000 09/01/2005 0 0.00 0.0152282 0.0000 50.0000 10/01/2005 1 87.22 0.0152282 85.9117 135.9117 11/01/2005 2 87.22 0.0152282 84.6231 220.5348 12/01/2005 3 87.22 0.0152282 83.3537 303.8885 01/01/2006 4 87.22 0.0152282 82.1034 385.9920 02/01/2006 5 87.22 0.0152282 80.8719 466.8639 03/01/2006 6 87.22 0.0152282 79.6589 546.5227 04/01/2006 7 87.22 0.0152282 78.4640 624.9867 05/01/2006 8 87.22 0.0152282 77.2870 702.2738 06/01/2006 9 87.22 0.0152282 76.1278 778.4015 07/01/2006 10 87.22 0.0152282 74.9859 853.3874 08/01/2006 11 87.22 0.0152282 73.8611 927.2485 09/01/2006 12 87.22 0.0152282 72.7532 1000.0017

A` = 1000.0017


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Calculate A`` Interest Rate Per Period = (Previous Iterative APR + .001) * (1 / Payments Per Year)


A`` = 999.5090 Formula Current Iterative APR = Previous Iterative APR + 0.001 * ( ( Loan amount - A` ) / ( A`` - A` ) )

Current Iterative APR = 0.1827384 + .001 * ( (1000.0000 - 1000.0017) / (999.5090 - 1000.0017) ) Current Iterative APR = 0.1827417 Previous Iterative APR = 0.1827384

If (Current Iterative APR - Previous Iterative APR) is greater than or equal to 0.0001, then do another pass. Since (0.1827417 - 0.1827384) = 0.0000034, and 0.0000034 is less than 0.0001, then another pass will NOT be needed. Loan APR = 0.1827


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APR in Schwab RT Web and Call Center The loan APR appears on various loan pages in Schwab RT Web and Call Center applications. Examples of APR displays from these ancillary applications appear below. The text used for the APR field label can be customized using the APR Text field in the Application Administration Content Manager. Note: The APR enhancement for Call Center will be included in a future release.

Loan Modeling/Request Page (Schwab RT Web) This page appears after the participant enters the principal amount and term of the requested loan and clicks the Calculate Payment button.

(Full amortization table not shown)


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Loan Summary Page (Schwab RT Web)

(Full amortization table not shown)


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Loan Modeling Page (Schwab RT Call Center)

Note: The APR enhancement for Call Center will be included in a future release.

Loan Summary Page (Schwab RT Call Center)



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Loan Payoff Report (Schwab RT Call Center)


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