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