What is 'Excess Cash Flow'
Excess cash flow is a term used to describe the income derived from mortgages or other assets backing a bond that is in excess of what is needed to retire the bond. The excess cash flow may be passed to investors who purchased a residual interest in the securities or used by the bond issuer to pay out to bond holders.
BREAKING DOWN 'Excess Cash Flow'
Excess cash flow usually occurs as a result of overcollateralization in order to improve the borrower's credit rating and lower the lender's default risk. Also, in terms of financial statements, excess cash flow can als refer to available cash left after expenditures and dividends are paid.