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TeachMeFinance.com - explain stripped mortgage-backed securities stripped mortgage-backed securities -- mortgage pass-through securities in which the cash flow from the underlying mortgages is separated. All principal is diverted into securities that pay only principal back to the investors, while all interest is diverted into securities that pay only interest. The interest-only (IO) and principal-only (PO) securities are used as hedging tools to provide greater stability for mortgage portfolios during periods of fluctuating interest rates . About the author Mark McCracken Author: Mark McCracken is a corporate trainer and author living in Higashi Osaka, Japan. He is the author of thousands of online articles as well as the Business English textbook, "25 Business Skills in English". Copyright © 2005 by Mark McCracken, All Rights Reserved. TeachMeFinance.com is an informational website, and should not be used as a substitute for professional financial or legal advice. TeachMeFinance.com and its owner recommend consultation with a professional financial advisor prior to any investment or financial decision. Please read our disclaimer.