Planned amortization class schedule; a principal payment schedule that is figured out by taking the minimum of the principal paydowns at both the lower collar and the upper collar. The lower and upper collars together form the PAC band. The area within the band represents the principal payment schedule that is guaranteed for every possible prepayment speed between the two collars. If prepayments are outside of the PAC band, then the PAC schedule cannot be met. However, the PAC schedule will not necessarily be met if prepayments on the collateral remain between the two collars. The schedule generates principal cash flows which make up the principal balance of the PAC.
The PAC schedule also refers to the schedule of decreasing principal balances that are used to allocate the principal cash flows (this is known as the PAC’s balance schedule). This schedule is determined by first calculating the monthly principal payments at the lower and upper bands.
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