Early amortization
Asset-Backed Securities glossary · Cash Flow Waterfalls & Triggers
Definition
The termination of a revolving period and commencement of principal amortization to bondholders, triggered by performance deterioration or structural events.
Early amortization in plain English
Some deals have a 'revolving period' where, as customers pay off their debts, the cash is used to buy fresh new debts instead of paying back the investors — like a fruit stand that keeps restocking rather than closing up. Early amortization is the emergency brake: if the pool of loans starts performing badly (too many people not paying) or some other trouble trigger trips, the restocking STOPS and every dollar collected immediately gets funneled to pay investors back as fast as possible. It's a built-in safety switch designed to get investors their money out before things get worse. The revolving party ends early, and repayment begins ahead of schedule.
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