Introduction to Rate Lock

Rate lock is an agreement between a customer and a bank that allows the customer to lock in the interest rate on a fixed rate loan over a specified time period at the possibility of rising interest rates. If the advertised rate for the customer’s chosen fixed rate period falls below their locked rate on their settlement date, for example disbursement date, the customer will be given the lower of the current advertised fixed rate and their locked rate. To provide this feature to the customers, bank will charge a Rate Lock fee.

This will protect the customer from being exposed to the risk of interest fluctuations.

The rate lock applies to both the new and existing contracts. While the system applies rate lock automatically for new contracts (based on the rate lock agreement Id entered), the user needs to trigger the application of rate lock manually for existing contracts.

The system compares the rate locked, contract rate (for existing contracts), and prevailing market rate during the application of rate lock and applies the lowest rate among those.

The system resets the contract rate back to the prevailing rate once the rate lock is expired.

This functionality allows banks to simplify the process by only creating the loan arrangement for the customer, where the user is able to capture the rate lock information within the loan arrangement.

This functionality enables bank users to input a fixed interest rate that the customer wishes to guarantee for their settlement (which is disbursement) when setting up a loan account via Temenos Transact or APIs. When the first partial or full settlement (disbursal) occurs, the system will automatically compute and compare the rate lock interest rate against the actual interest rate on that day and apply the lowest rate.

New fields have been released as part of the AA.PRD.DES.INTEREST application to capture the rate lock agreement details.

Generic API's

This functionality allows banks to manage loans with the reference of the Rate Lock Id and to retrieve details of the various types of loans such as mortgage, rate locks, loan redraw, etc.

The AA.ARR.INTEREST,AURLOC.API.CREATE.RATE.LOCK.1.0.0 version has been created as part of this functionality to allow users to create and update a loan with the reference of the Rate Lock Id.