Scheduled interest is the amount of interest that is due on a loan at a specific point in time.
- In the context of securitisation, the scheduled interest is used to determine the amount of cash flow that will be generated by the securitisation.
The scheduled interest is typically calculated based on the original terms of the loan, such as the principal amount, the interest rate, and the amortization schedule.
The scheduled interest can be affected by a number of factors, including:
- Prepayments: If a borrower prepays their loan, the scheduled interest will decrease.
- Defaults: If a borrower defaults on their loan, the scheduled interest will be paid from the securitisation's reserve fund.
- Changes in interest rates: If interest rates change, the scheduled interest may increase or decrease.
Here are some applications of scheduled interest in securitisation:
- To calculate the cash flow: The scheduled interest is used to calculate the cash flow that will be generated by the securitisation. The cash flow is used to pay the interest and principal on the securities issued by the securitisation.
- To determine the risk: The scheduled interest is used to determine the risk of the securitisation. The risk of the securitisation is affected by the likelihood of prepayments and defaults.
- To price the securities: The scheduled interest is used to price the securities issued by the securitisation. The price of the securities is affected by the risk of the securitisation.
The scheduled interest is an important consideration in securitisation. It is important to understand how the scheduled interest can be affected by changes in the underlying loans in order to assess the risk of a securitisation.