What is accrued interest?
Source: http://www.investorwords.com/68/accrued_interest.html Definition 1 Interest that is due on a bond or other fixed income security since the last interest payment was made. This often occurs for bonds purchased on the secondary market, since bonds usually pay interest every six months, but the interest is accrued by the bondholders on a day-to-day basis. When a bond is sold, the buyer pays the seller the market price plus the accrued interest, for which the buyer will be reimbursed when the issuer pays next pays interest. Accrued interest is calculated on a 30-day month/360-day year for corporate bonds and municipal bonds, and on actual-calendar-days for Government bonds. Income bonds and bonds in default trade without accrued interest. When calculating accrued interest on a bond that is being sold, it is conventional to consider the time period from the most recent payment up to, b
In the context of mortgage notes, this is interest that has been earned by the Mortgagee per terms and conditions of the loan associated with the note, but not yet paid by the Mortgagor. This may happen when the Mortgagor is late on a few payments on an interest only or even on a fully amortizable loan. In this case, this could mean that the Mortgagor is in default. However, accrued interest could also apply to negative amortized loans when the unpaid interest is not considered as a Mortgagor default.
Principal balance x interest rate / 365.25 = Daily interest. Example: You borrow $5,000.00 at 8%. The amount of interest charged each day can be determined as follows: (5000.00) x (.08) = 400 / 365.25 = $1.10 per day. When a payment is received, fees are satisfied first, followed by accrued interest. The remaining amount is applied to the principal.
Accrued interest is the amount of interest currently due but not yet paid on a bond issue. The process of calculating the amount of interest accrued depends on identifying the number of days that have passed since the last disbursement of accrued interest to the owner of the bond. At the same time, it is important to know the rate of interest that is compounded at each schedule coupon date. Understanding how to calculate accrued interest is important when a buyer is considering the purchase of an existing bond issue. The buyer will be responsible for paying the seller the purchase price of the bond plus any interest that has accrued between the disbursement of the last interest payment and the date of the sale to the new owner. In order to assure that the interest is calculated properly, knowing how the interest is compounded and if the bond pays interest on an annual or semiannual basis is extremely important. As an example, if the bond has a value of $10,000.00 in US Dollars (USD) an
