Filter by Categories
Accounting
Banking

Finance




WAC Interest Only


An interest only (IO) (from a fixed-rate mortgage) which allows bondholders to receive a fixed coupon while the amount of change in the weighted average coupon (WAC) is passed on to the IO holders. It is an IO security that is created from the excess interest from underlying mortgages (the amount by which the coupon rate is in excess of the rate an issuer wants to pay on a specific issue- the latter is known as the remittance rate). For example, a 1% IO is stripped off an 8% collateral WAC, and the coupon to the bond classes is 7%. In this case, the change in the collateral WAC will impact the IO coupon to the effect that if the loan with the high coupon prepays, the WAC IO coupon gets lower, and if the loan with the low coupon prepays, the coupon on the WAC IO gets higher.



ABC
Finance, as a field of knowledge, is substantially wide-ranging and virtually encompasses everything in the realm of corporate finance, financial management, ...
Watch on Youtube
Remember to read our privacy policy before submission of your comments or any suggestions. Please keep comments relevant, respectful, and as much concise as possible. By commenting you are required to follow our community guidelines.

Comments


    Leave Your Comment

    Your email address will not be published.*