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Loan and Mortgage Terms Glossary

Tranche:

One of the classes, portions or segments of a bond or mortgage-backed security, such as a collateralized mortgage obligation (cmo). Each tranche normally offers different terms, usually involving the length of time it takes for principal to be repaid to investors. With this type of security, all payments of principal from the underlying mortgages are diverted initially to the first tranche. When all principal has been repaid in the first tranche, payments of principal begin to the second tranche and, after the second tranche is retired, the payments continue in turn to the rest of the tranches, like a series of steps, until investors in the last tranche have been repaid. By selecting a particular tranche, investors choose whether they want their funds repaid quickly or whether they want to lock in their investment for a longer period of time. In another meaning, tranche also refers to a portion of a bond that is distributed in another geographic area, such as a foreign country.


 
     
 
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