DEFINITION of 'Targeted Amortization Class - TAC'

A type of credit derivative that is similar to a planned amortization class (PAC) in that it protects investors from prepayment; however, it is structured differently than a PAC. TACs protect investors from a rise in the prepayment rate or a fall in interest rates. They do not protect from a fall in the prepayment rate like PACs.

BREAKING DOWN 'Targeted Amortization Class - TAC'

The TAC is essentially a bond under a collateralized mortgage obligation (CMO). Under a TAC, the principal is paid on a predetermined schedule. Any prepayment that occurs is amortized in order to maintain the schedule. TACs are inferior to PACs because they only provide one-sided prepayment protection.

RELATED TERMS
  1. Planned Amortization Class (PAC) ...

    A class of tranche in a planned amortization class (PAC) bond ...
  2. Companion Bond

    A class of tranche found in a planned amortization class (PAC) ...
  3. Companion Tranche

    A class of tranche found in planned amortization class (PAC) ...
  4. Political Action Committee / Super ...

    Political action committees (PACs) privately raise money to donate ...
  5. Prepayment

    The satisfaction of a debt or installment payment before its ...
  6. Super PO

    A companion tranche structured as a Principal Only (PO) bond, ...
Related Articles
  1. Insights

    How Super PACs Work

    The Federal Election Commission left a loophole in the election donation process: Super PACs.
  2. Investing

    The Risks Of Mortgage-Backed Securities

    Find out how weighted average life guards against prepayment risk.
  3. Insights

    Top 10 Contributors to the Clinton Campaign (FB, H)

    Hedge fund managers dominate this list of the top donors to Clinton's campaign.
  4. Investing

    Top 10 Donors to the Trump Campaign (FB, WWE)

    These CEOs want Trump in the White House.
  5. Insights

    Where Do Campaign Contributions Go After Elections?

    Learn about what those contributions are used for when the candidate is no longer running.
  6. Personal Finance

    Profit From Mortgage Debt With MBS

    Mortgage-backed securities can offer monthly income, a fixed interest rate and even government backing.
  7. Investing

    Explaining Amortization In The Balance Sheet

    Amortization occurs when an asset’s value decreases over time, usually over its estimated useful life.
  8. Insights

    Who's Funding Hillary Clinton?

    From Hollywood producers to financial executives, Clinton has been raking in the funds.
  9. Investing

    Explaining Amortization In The Balance Sheet

    Amortization is important to account for intangible assets. Read to find out more about amortization.
  10. Investing

    Introduction To Asset-Backed And Mortgage-Backed Securities

    In this article, we will go through the structure, along with some examples of ABS and valuation.
RELATED FAQS
  1. Do prepayments provide working capital?

    Learn how prepayments for various services such as insurance, rent and supplies are included as part of a company's current ... Read Answer >>
  2. How should you choose the amortization period for your mortgage?

    Read about key considerations that homeowners should take into account before choosing the amortization period for their ... Read Answer >>
  3. Do FHA Loans Have Prepayment Penalties?

    Learn whether FHA loans have prepayment penalties, and find out the rules governing interest charges when prepaying your ... Read Answer >>
  4. What does amortization mean in the context of a pension plan?

    Discover when and why accountants use amortization techniques in the context of pension plans, and why those changes help ... Read Answer >>
  5. What is a Z bond in a collateralized mortgage obligation (CMO)?

    Learn about Z-bonds, which are the riskiest level of tranches in collateralized mortgage obligations, and understand how ... Read Answer >>
Hot Definitions
  1. Davos World Economic Forum

    The annual meeting of the World Economic Forum hosted at Davos—a small ski town in Switzerland—in January each year is among ...
  2. Smart Home

    A convenient home setup where appliances and devices can be automatically controlled remotely from anywhere in the world ...
  3. Efficient Frontier

    A set of optimal portfolios that offers the highest expected return for a defined level of risk or the lowest risk for a ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the ...
  6. Border Adjustment Tax

    A tax levied on goods based on where they are sold – exported goods are exempt from tax; those imported and sold in the ...
Trading Center