Early Renewal
When a bank or customer renews the condition fixing of a loan before the current condition fixing ends, this is referred to as “early renewal”. At an agreed future renewal date, the current condition fixing ends and new condition fixing comes into effect. The effect of early renewal is similar to that of exact renewal.
Impact
The existing condition fixing period end date and individual price conditions are modified.
The existing inpayment agreement period end date and individual payment conditions are modified.
Early Renewal Penalty
An early renewal penalty can be calculated and charged to the customer, as the shortening of the old condition fixing may entail a loss for the bank.
Example
Consider the following loan contract:
Loan contract details |
Date(s) |
Current condition fixing period: |
Jan 1, 2007 to Jan 1, 2008 |
Individual condition 1: |
Jan 1, 2007 to Oct 30, 2007 |
Individual condition 2: |
Jan 1, 2007 to Jan 1, 2008 |
Individual condition 3: |
Jan 1, 2007 to Jul 1, 2007 |
Individual condition 4: |
Dec 1, 2007 to Jan 1, 2009 |
Date of renewal (two months early): |
Oct 30, 2007 |
New condition fixing period: |
Oct 30, 2007 to Jan 1, 2009 |
With early renewal, the system considers all individual conditions that are valid at the start date of the new condition fixing period, that is, on Oct 30, 2007, for inclusion in the new condition fixing. Therefore, only individual conditions 1 and 2 are proposed at renewal. Individual condition 3, which ends before the start date of the new condition fixing period, is not proposed at renewal. Individual condition 4, which is valid after the start date of new condition fixing period, is deleted.
Early renewal is illustrated in the following figure:
