Targeted Amortization Class - TAC


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.

  1. Collateralized Mortgage Obligation ...

    A type of mortgage-backed security in which principal repayments ...
  2. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  3. Companion Tranche

    A class of tranche found in planned amortization class (PAC) ...
  4. Mortgage-Backed Security (MBS)

    A type of asset-backed security that is secured by a mortgage ...
  5. Prepayment Risk

    The risk associated with the early unscheduled return of principal ...
  6. Tranches

    A piece, portion or slice of a deal or structured financing. ...
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