- Principal is the amount of money that is borrowed by a borrower from a lender.
- In the context of securitisation, the principal is the amount of money that is borrowed by the underlying assets.
- The principal is typically repaid to investors over time, with interest.
There are a number of applications of principal in securitisation, including:
- To calculate the interest payments: The principal is used to calculate the interest payments that will be made to investors.
- To determine the maturity date: The maturity date of the securitisation is typically determined by the amount of principal that is outstanding.
- To manage risk: The principal is an important factor in managing the risk of a securitisation. If the principal is not repaid, the investors in the securitisation may lose money.
Here are some examples of how principal is used in securitisation:
- Mortgage-backed securities: In a mortgage-backed security, the underlying assets are mortgages. The principal of the mortgages is repaid to investors over time, with interest.
- CDO: In a collateralized debt obligation, the underlying assets can be a variety of debt instruments, such as mortgages, corporate bonds, and loans. The principal of the underlying assets is repaid to investors over time, with interest.
Principal is an important concept in securitisation, and it is used in a variety of ways.