PAC bond - Definition

It stands for Planned Amortization Bond, a Mortgage-backed bond that may be offered in a collateralized mortgage obligation. In companion bonds, once the Principal is paid in full, any excess payments are then applied to the PAC bond. These bonds typically take longer to mature, so they are often partnered with faster growing bonds to Yield the bondholder a return quicker and prevent early redemption.

Planned Amortization Class (PAC) bonds have a principal payment Rate determined by two different prepayment rates, which together form a band (also called a collar). Early in the life of the CMO, the prepayment at the lower PSA will yield a lower prepayment. Later in the life, the principal in the higher PSA will have declined enough that it will yield a lower prepayment. The PAC Tranche will receive whichever rate is lower, so it will change prepayment at one PSA for the first part of its life, then switch to the other rate.



Terms near "PAC bond"

PAC tranche
Pac-man
Pacific Exchange
Pacific Rim
Pacific Stock Exchange
Package Deal
Package loan
Package mortgage
Package policy
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