Estimate your prepayment penalty before refinancing or selling. Understand the true cost of exiting your commercial loan early and compare penalty structures.
⚠️ Important: This is an estimate. Actual yield maintenance calculations vary by lender and loan document. Some use the greater of the YM formula or 1% of the balance. Defeasance (CMBS) is calculated differently. Always review your loan documents or consult your advisor for exact figures.
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Need help navigating your prepayment penalty? Our advisors review your loan docs and calculate exact costs before you commit.
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Know what you owe before you refinance, sell, or pay off your CRE loan early.
Yield maintenance compensates the lender for lost interest when you prepay. It calculates the present value of the difference between your note rate and the current Treasury rate for the remaining term. When rates drop, yield maintenance gets expensive because the rate gap widens.
Yield maintenance is cheapest when current Treasury rates are close to or above your note rate (the rate differential shrinks or disappears), or when you are very close to loan maturity (fewer months of lost interest). In a rising rate environment, YM penalties can be near zero.
Defeasance replaces your loan collateral with Treasury bonds instead of paying a penalty. Common in CMBS loans. It is often more expensive than yield maintenance because of transaction costs (legal, accountant, securities dealer fees). Defeasance can cost $50K–$150K+ in fees alone.
Step-down penalties (e.g., 5-4-3-2-1%) decrease each year and are simpler to calculate. Flat penalties (1–3% of balance) are the most borrower-friendly. When negotiating new loans, the prepayment structure should be a key consideration — our advisors help you get the best terms.
Different loan types come with different prepayment terms.
| Structure | Typical Cost | Common In | Borrower Impact |
|---|---|---|---|
| Yield Maintenance | 1–5%+ of balance | Bank CRE, Life Co | Expensive when rates drop |
| Defeasance | Varies + $50K–$150K fees | CMBS, Conduit | Complex, can be very costly |
| Step-Down (5-4-3-2-1) | 1–5% declining | Portfolio, DSCR | Predictable, decreasing |
| Flat Penalty | 1–3% of balance | Bridge, Some CRE | Simple, fixed percentage |
| Lockout Period | Prepay prohibited | CMBS (first 2–5yr) | Cannot exit during lockout |
| Open Prepay | $0 | Some Bridge, Portfolio | Most borrower-friendly |
Every calculator we offer, in one place — run the next number your lender will ask about.
Common questions about yield maintenance and prepayment penalties.
Yield maintenance = Present Value of (Note Rate − Treasury Rate) × Remaining Balance for each month remaining. In simplified terms, it's the present value of the interest differential the lender would lose. When rates are much lower than your note rate, YM is expensive because the lender loses more income.
Use the Treasury rate matching your remaining loan term. If you have 5 years left, use the 5-year Treasury yield. If 3 years, use the 3-year Treasury. Some loan docs specify which Treasury to use — always check your specific loan agreement for the defined replacement rate.
YM is most expensive when: (1) your note rate is much higher than current Treasury rates (large rate differential), (2) you have many years remaining on the loan (more months of lost interest), and (3) Treasury rates are low (deeper discount widens the gap). In a rising rate environment, YM can approach zero.
On new loans, yes. You can negotiate step-down penalties instead of YM, open prepayment periods after a certain date, or a flat penalty structure. Bridge loans and some portfolio lenders offer open prepay. The prepayment structure should be negotiated before closing — our advisors ensure favorable terms.
Yield maintenance is a cash penalty paid to the lender. Defeasance replaces your loan collateral with Treasury bonds that replicate the remaining payment stream, then releases the property. Defeasance is common in CMBS loans and typically costs more due to legal and transaction fees ($50K–$150K+).
We review your current loan documents to calculate the exact penalty, determine if refinancing still makes sense after accounting for the penalty cost, and negotiate better prepayment terms on your next loan. Many borrowers overpay on penalties simply because they don't calculate them before committing.
Our advisors calculate your exact prepayment penalty, analyze whether refinancing still makes financial sense, and negotiate better terms on your next loan.
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