DEFINITION of 'Active Tranche'

A tranche of a collateralized mortgage obligation (CMO) that is currently receiving principal payments that are passed through to its investors. While interest is paid on all tranches of a CMO when it is first issued, principal payments on each tranche are made according to a set schedule that is defined in the CMO prospectus. A tranche becomes the active tranche during the period when it is receiving (and paying out to investors) principal payments as per the schedule, in addition to interest.

BREAKING DOWN 'Active Tranche'

After an active tranche in a CMO receives the last principal payment, it is retired. The next tranche then becomes the active one. The process continues until all tranches in the CMO are retired.

RELATED TERMS
  1. Sequential Pay CMO

    A sequential pay CMO is a mortgage obligation that retires tranches ...
  2. Super PO

    A super PO is a principal-only mortgage security which provides ...
  3. Targeted Amortization Class - TAC

    Targeted amortization class (TAC) refers to a type of credit ...
  4. Reserve Tranche

    The reserve tranche is a segment of an International Monetary ...
  5. Asset-Backed Security - ABS

    An asset-backed security is a debt security collateralized by ...
  6. Z-Bond

    Z-bonds are the last tranche to receive payment from collateralized ...
Related Articles
  1. Investing

    CMO vs CDO: Same Outside, Different Inside

    The concept of collateralizing and structured financing predates the market for collateralized mortgage obligations and collateralized debt obligations.
  2. Personal Finance

    Profit From Mortgage Debt With MBS

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

    What is a Collateralized Loan Obligation?

    A collateralized loan obligation (CLO) is a security consisting of a pool of loans organized by maturity and risk.
  4. Investing

    How to Save Money on Your Mortgage

    These strategies can potentially save you thousands of dollars over the length of a mortgage.
  5. Personal Finance

    How To Become a Mortgage-Backed Securities Analyst

    Specializing in structured or derivative credit products like mortgage-backed securities requires education and prior experience in the mortgage field.
  6. Financial Advisor

    Principal Global Investors: Investment Manager Highlight (PFG)

    Learn about the investment operations of Principal Global Investors, the Principal Financial subsidiary with more than $360 billion in assets under management.
  7. Taxes

    Creating a Tax-Deductible Canadian Mortgage

    Find out how to get a tax benefit from your mortgage like your neighbours to the south.
RELATED FAQS
  1. What is a tranche?

    A tranche is a security, like a collateralized mortgage obligation, that can be split up into smaller pieces and subsequently ... Read Answer >>
  2. Why do banks securitize some debts, and how do they sell them to investors?

    Learn how and why banks securitize debt, how the securitized debt is sold to other investors, and how different the different ... Read Answer >>
  3. Why do most of my mortgage payments start out as interest?

    The first thing a first-time home buyer needs to know is that over the life of the mortgage, the portions of interest to ... Read Answer >>
  4. How did the ABX index behave during the 2008 subprime mortgage crisis?

    Read about the disastrous performance of the various ABX indexes in the subprime mortgage crisis of 2008 during the middle ... Read Answer >>
Hot Definitions
  1. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  2. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  3. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  4. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  5. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
  6. Watchlist

    A watchlist is list of securities being monitored for potential trading or investing opportunities.
Trading Center