Monthly position buffers are relevant to the credit licence holders and enterprise administrators.
Each licence holder is required to have own servicing calculation which is provided by the Monthly Position table in Broker Tools and consumer Asset Finance Tools.
Note that these are not lender buffer of floor rates and have nothing to do with lender maximum borrowing calculators. Lender rates are in-built in our data base and are relevant and specific to each lender.
Monthly position table presents a surplus/deficit calculations in three scenarios - current position, new loan is issued, new loan is issued with buffer parameters.
This settings option deals with these buffer parameters.
Go to Settings > Financial position buffers:
For a large proportion of users, these parameters are locked for editing and won't be visible in Settings. If the parameters show all '0' values it means that the default parameters are in place.
Buffer parameters can be set separately for home loans and consumer asset finance deals.
Buffers can be set on:
Income (as gross rental income or total net income shading);
Existing mortgage repayments (as a % addition/buffer to the new loan rate or existing repayment multiplier);
New finance repayments (as a % addition/buffer to the new loan rate or floor interest rate);
Credit card limit %;
Overdraft limit % (NZ only).
Expenses buffer calculation follows LIXI guidelines on expense items that are in and out of HEM. When expenses are collected, only those types of expenses that are in HEM will be compared to HEM, and if the sum of those items is less than HEM dictates, then the HEM figure will be used in the buffer calculation. In such a case, the total buffer expenses will be HEM + sum of items out of HEM. Read more on expenses calculation in this article.
Note that existing personal, car loans and other non mortgages are not buffered.
Each option has a two different ways to set the buffer, to provide necessary variety in license holder's policy.
Buffer parameters can be changed by organization owner by entering new parameter in the fields provided and selecting a radio button to activate that option:
Switching HEM Buffer option
Admin users can go to Settings >> Financial Position Buffer tab and switch the option on or off.
Effective buffers will show below Monthly financial position table:
What these parameters mean:
Rental income shading: apply a percentage of rental income that is used to calculate net income (e.g. 80%).
Total income shading: apply a percentage of total net income that is used in net position (e.g. 90%).
Existing repayment buffer: add a percentage to the rate of new loan to calculate the existing mortgage repayments over current balance (e.g. 2.5%).
Existing repayment multiplier: multiply a declared repayment for the existing mortgages with a figure to come up with a buffer repayment.
Proposed repayment buffer: add a buffer to the actual new loan interest rate to calculate buffer repayment over new loan limit (e.g. 2.5%).
Proposed repayment floor rate: apply a floor rate for a new loan to calculate a buffer repayment over new loan limit (e.g. 5.75%).
Credit card: apply 3.8% to the card limit as the default monthly repayment amount
Note only one option can be used per section, e.g. either buffer or floor rate), with a radio button making the selection active.
Appendix 1 - Default rates
The default parameters for Broker Tools in Australia are:
80% shading of gross rental income;
Existing mortgages repayments are multiplied by 1.35 times;
New loan repayments floor rate is 7.25%.
The default parameters for Broker Tools in New Zealand are:
75% shading of gross rental income;
Existing mortgages repayments are multiplied by 1.35 times;
New loan repayments floor rate is 7.50%.
Appendix 2 - Existing liability is missing information
When full information is presented in the mortgage liability and 'buffer' value is added (e.g. 2.5%), repayment will be calculated based on loan balance (A), declared/actual interest rate (B) + buffer rate, loan end date (C).
If the loan end rate and/or actual interest rate aren't specified, default values will be 25 years (for C) and 4% (for B).
