The surplus (NDI) calculation uses values supplied in the application submitted by the borrower in order to calculate a surplus or excess of funds that is estimated will be available to the borrower in order to pay for the finance. This surplus can then be used during credit assessment.
Net
Monthly Income i.e. all income added together less tax (i.e.
income after tax)
Minus: Existing debt commitments
Minus: Factor (Expenses less
Partner Discount Expenses)
Minus: Monthly application repayment amount
Minus: Buffer
Minus: Non basic expense liabilities
= Surplus
Each of the sections are described below in detail.
NET MONTHLY INCOME
The
monthly after tax total calculate as “Annual employment income” + (plus) “All
additional income”.
- “Annual employment income” only applies if the borrower is an
individual
- “All additional income”: The income commitments will be retrieve
from the other sources of income as defined by the finance company. Any sources
of income that have the “include in surplus” set to true will be included.
- The estimated tax for the
borrower is then determined using the total borrower income value and deducted
from the total.
- If the “Include Partner Income” setting on the cost of living
business rule on the originator group product is set to true, then the partners
annual income less tax on the partners income, will be added to the borrowers
income. Only applies if the borrower is an individual.
- The final result will then be divided by 12 to get a monthly
value
EXISTING DEBT COMMITMENTS
Existing debt commitments are
any periodic
repayment a borrower is required to make
toward
repayment of an existing debt facility.
The debt commitments
will be retrieved from the debt types as defined by the finance company that
have an include in surplus set to true, and summed together. For each debt type, the values applied will be as per the settings of the debt type i.e. the below 3 options will be applied in the order presented and the first non zero
result will be used for each debt type.
- If “use percentage of repayment” has a value – calculate monthly repayment for surplus equal to X% of repayment value supplied by the borrower. If the “Minimum Weekly Amount on Amount” on the debt type, contains a value, and the borrower / applicant has supplied a value for the debt type, then the greater of the “Minimum Weekly Amount” (adjusted to the correct frequency) on the debt type and the debt type value supplied by the customer will be used. Example if the minimum amount (adjusted to the correct frequency) for mortgage is $300 and the mortgage amount on the application is $100, then $300 will be used instead of the mortgage value supplied on the application. This is only applicable if the applicant has supplied a minimum value for the debt type.
- If “use percentage of limit” has a value – calculate
monthly repayment for surplus equal to X% of limit value supplied by the
borrower.
- If “use percentage of balance” has a value – calculate
monthly repayment for surplus equal to X% of outstanding balance value supplied
by the borrower.
FACTOR
The factor deals with expenses. Existing expenses
are any periodic expense a borrower is required to make. It is calculated using expenses and partner
expenses, if the borrower in an individual, as detailed below.
Expenses
Each
expense is calculated depending on the value of the “Use for Expenses In NDI” setting in
the originator
group product cost of
living business rule:
- If the
setting in the cost of living business rule is set
to “COLA” then the Expenses will be set to the COLA value. The cola value will be retrieved from the applicant’s
suburb of their current address and applied to their monthly income i.e.
(Income as determined
above / 12)
- If the
setting in the cost of living business rule is set
to “HPI”, Henderson poverty index, then the Expenses will be set to
the HPI value as determined from the HPI tables. We will
need to understand if the applicant is single, married
or defacto and the number dependents
they have. Convert values to monthly value.
- If the
setting in the cost of living business rule is set
to “HEM”, household expenditure measure, then the Expenses will be set
to the HEM value as determined from the HEM tables. We will
need to understand if the applicant is single, married or defacto, the number
dependents they have and the region they live in. Convert
values to monthly value. Use will also be made of the post code from the
current address to determine the region. If no post code / region exists, the
closest possible post code that does exist in the state) of the borrower’s
current address) will be used (sorting post codes in numeric order it will use
the post code number that is closest in order to the one supplied example if
post code 100, 105 and 110 exist and post code 106 is supplied, it will find
post code 105 below and post code 110 above. 110 – 106 = 4 and 106 – 105 = 1.
So, it will use post code 105 as 1 is less than 4. If the values are the same,
it will use the greater of the post codes). The total income after tax for the
borrower only will also be used i.e. as per the income section above.
- If the
setting in the cost of living business rule is set
to “Total Living Expenses” then the Expenses will be set to the
calculated living expenses as supplied by the applicant and determined by the settings on the expense types. The expenses to
include will be retrieved from the expense types for the finance company that
have an “include in surplus set to true” and the “apply to surplus calculation” value set to “Basic Expense”. If the “Minimum Weekly Amount” on the expense type,
contains a value, and the borrower /
applicant has supplied a value for the expense type, then the greater of
the “Minimum Weekly Amount” (adjusted to the correct frequency) on the expense
type and the expense type value supplied by the customer will be used. Example
if the minimum amount (adjusted to the correct frequency) for rental is $300
and the rental amount on the application is $100, then $300 will be used instead of the rental value supplied on the application. This is only applicable if the applicant has supplied a value for the
expense type, including if the value is zero. As mentioned above, this only applies to expense types where the “apply to surplus calculation as” value
is set to “Basic Expense”.
If set to “Greater
of Total Living Expenses Vs COLA” the Expenses will be set to the greater value
of:
The Total Living Expenses (see above for how determined)
Cola value (see above for how determined)
If set to “Greater
of Total Living Expenses Vs HPI” the Expenses will be set to the greater value
of:
The Total Living Expenses (see above for how
determined)
HPI value (see above for how determined)
If set to “Greater
of Total Living Expenses Vs HEM” the Expenses will be set to the greater value
of:
The Total Living Expenses (see above for how
determined)
HEM value (see above for how determined)
In all cases, the discounts
for partners as described further below will be applied accordingly.
Partner Expense
Discounts
This only applies if the borrower is an individual not if
the borrower is a business.
If the borrower has a partner i.e. their marital status
on the application is married or defacto a
discount can be applied to the Expenses.
The “Discount Expenses” setting
in the
originator group product cost of living
business rule will determine if and how the partner discount is applied:
- If set to “None”
then no discount will be applied.
- If set to “HEM” then
the discount will only be applied to the HEM value. See discount calculation
below.
- If set to “HPI” then
the discount will only be applied to the HPI value. See discount calculation
below.
- If set to “COLA”
then the discount will only be applied to the COLA value. See discount
calculation below.
- If set to “Total
Living Expenses” then the discount will only be applied to the Total Living
Expenses value. See discount calculation below.
- If set to “Final
Comparison Value” then the discount will be applied to the full Expenses value
after comparison. See discount calculation below.
Discount
Calculation: Using the settings in
the originator
group product cost of living business rule
- If the “apply discount By” setting in the business rule is set to “Percentage Value Of” then the Expenses value will be multiplied by the percentage indicated in the rule.
- If the “apply discount By” setting in the business rule is set to “Pro-Rate of income” then the expense value will be adjusted pro-rate to the ratio of the applicant and their partner’s income, example:
- If “To A minimum” setting on the business rule has a value, then the partner discounted percentage will not be allowed to be higher than the minimum percentage. See example 2 below.
Example 1
Applicant earns $100,000, partner earns $50,000, HEM is $3,000
Surplus calculation should discount HEM by the ratio (100,000 / (100,000 + 50,000))
i.e. 3,000 * (100,000 / (100,000 + 50,000))
= 3,000 * (0.67)
= 2,000
So, the HEM for the applicant should be $2,000
Example 2:
Applicant earns $40,000, partner earns $150,000, HEM is $4,000.
Surplus calculation should discount HEM by the ratio (40,000 / (40,000 + 150,000))
i.e. 4,000 * (40,000 / (40,000 + 150,000))
= 4,000 * (0.21)
But 0.21 < 0.3 (the minimum, see below) therefore set to 0.3
= 4,000 * 0.3
= 1,200
So, the HEM for the applicant should be $1,200
MONTHLY APPLICATION REPAYMENT AMOUNT
The repayment amount for the application in
question is converted to a monthly value so that it is in line with the rest of
the expenses. Even when “Terms are in days” or “payment frequency is on
settlement”, the same concept will apply in that it will be converted to a
monthly value. With the payment frequency being on settlement there is the
added complication that the term could end up being less than a month and in
this case 1 month will be used.
Here are some examples
1)
if the term is days
and not months then the calculations need to convert to a monthly value.
example
term is 150 days, repayment frequency is weekly,
weekly repayment amount calculated is $200
Formula
to calculate monthly value will be ($200 * 52)/12
2)
If the repayment
frequency is on settlement then this too needs to be converted to a monthly
value
example
terms is 6 months, repayment frequency is on settlement,
repayment amount calculated for time of settlement is $1000
Formula
to calculate monthly value will be $1000 / 6 = 166.67
3)
if the term is days
and not months the repayment frequency is on settlement then this too needs to
be converted to a monthly value
example
term is 150 days, repayment frequency is on settlement,
repayment amount calculated for time of settlement is $1000
Formula
to calculate monthly value will be $100 / 150 * 365 / 12
BUFFER
The surplus can be
reduced/increased by a “buffer amount” (the buffer amount will be a setting in
the credit rating table).
If the “buffer amount” on the
secondary credit rating is set to “surplus buffer amount”, the fixed amount as
defined on the credit rating will be used.
If the “buffer amount” on the
secondary credit rating is set to “surplus buffer percentage”, the buffer
amount will be calculated as (application repayment amount * surplus buffer
percentage).
NON BASIC EXPENSE LIABILITIES
Sum of all expenses supplied by
the borrower where on the expense type they have an “include in surplus
calculation” value set to true and the “apply to surplus calculation as” set to
“Non Basic Expense Liability”.
If the “Minimum Weekly Amount”
on the expense type, contains a value, and
the borrower / applicant has supplied a value for the expense type, then
the greater of the “Minimum Weekly Amount” (adjusted to the correct frequency)
on the expense type and the expense type value supplied by the customer will be
used. Example if the minimum amount (adjusted to the correct frequency) is $300
and the amount on the application is $100, then $300 will be used instead of
the value supplied on the application. This
is only applicable if the applicant has supplied a value for the expense type,
including if the value is zero