Interest is the payment that is made to the holder of a securitisation security for the use of their money. Interest is typically paid on a regular basis, such as monthly or quarterly.
The amount of interest that is paid on a securitisation security is determined by a number of factors, including the credit rating of the underlying assets, the term of the securitisation, and the market interest rate.
There are a number of applications for interest in securitisation. One application is to provide a return to investors. Investors in securitisation securities are typically looking for a return on their investment, and interest payments are one way to provide this return.
Another application of interest in securitisation is to reduce the cost of borrowing for the originator. The originator of a securitisation transaction typically borrows money from investors to finance the purchase of the underlying assets. The interest payments that the originator makes to investors can help to reduce the cost of this borrowing.
Here are some other applications of interest in securitisation:
- To make securitisation transactions more attractive to investors
- To increase the liquidity of the securitisation market
- To provide a cushion against losses
Interest can be a useful tool for both investors and originators. For investors, it can help to provide a return on their investment and to make securitisation transactions more attractive. For originators, it can help to reduce the cost of borrowing and to increase the liquidity of the securitisation market.