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.

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