Excess interest collections
Asset-Backed Securities glossary · Cash Flow Waterfalls & Triggers
Definition
Collections in excess of scheduled bond interest and trust expenses; first absorbed by trust shortfalls then released to subordinate/residual holders.
Excess interest collections in plain English
Imagine a bond is backed by thousands of car loans, and every month those borrowers pay in more interest than the bond actually owes to investors plus the cost of running the deal. That leftover money is "excess interest collections." The rule is simple: first it's used to plug any holes (if some borrowers didn't pay, this cash covers the gap), and only what's left after that gets paid out to the riskiest, last-in-line investors (the "residual" holders). Think of it like a household budget: extra income first covers surprise bills, and only the true leftover becomes fun money.
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