Accelerated amortisation is a provision in a securitisation structure that allows for the early repayment of principal on the underlying assets. This can happen for a number of reasons, including:
- The
borrower pays off the
loan early.
- The securitisation structure includes a call option that allows the issuer to repurchase the underlying assets at a predetermined price.
- The underlying
assets experience losses that cause the value of the securitisation to decline below a certain threshold.
Accelerated amortisation can have a number of implications for investors in securitisations. First, it can reduce the amount of interest income that investors receive. Second, it can increase the risk of losses for investors if the underlying assets experience losses. Third, it can make it more difficult for investors to sell their investments if the market for securitizations is illiquid. Investors should carefully consider the risks of accelerated amortisation before investing in securitisations.