Exit Fee

What an exit fee is

An exit fee is a charge the lender collects when a loan is paid off. It is usually stated in points, where one point is 1% of the loan amount, and it is deducted from the payoff proceeds at the closing of your sale or refinance. You do not pay it monthly, and you do not see it in the interest rate, which is exactly why it is easy to overlook when comparing quotes.

Exit fees are most common on short-term, interest-only loans: commercial bridge loans, hard money, and mezzanine or other subordinate debt. A long-term permanent loan more often prices its early-repayment cost through a prepayment penalty instead. The point of an exit fee is to make sure the lender earns a minimum return on the loan even if the loan is repaid quickly.

There is no statute that sets an exit fee for a commercial loan. It is purely a contract term, which means the term sheet is the only place you have leverage over it.

How it works

The fee is the loan amount (or the amount the documents name) multiplied by the stated percentage.

Exit fee = fee base × exit fee percentage

Three details in the loan agreement decide what you actually pay:

• The base. The fee can be calculated on the original loan commitment, on the amount actually funded, or on the balance outstanding at payoff. On a construction or renovation loan that is only partly drawn, or a loan that has been paid down, the base is worth real money.
• The trigger. Most documents charge the fee on any full repayment, including repayment at maturity. Some also charge it on partial repayments or on a release of one property from a blanket loan. Read the definition of "repayment" closely.
• The waivers. Some lenders waive or reduce the fee if they provide the permanent or takeout loan. That is a negotiated carve-out, not a default, and it should be in the term sheet rather than promised verbally.

Worked example

Assumptions for illustration only; your term sheet sets the real numbers. A borrower takes a $3,000,000 bridge loan at 10.0% interest-only with a 1% origination fee and a 1% exit fee. These are the same assumptions used on our bridge loan page.

The 10.0% rate is the same in both columns, but the all-in cost is 14.0% a year if the loan is repaid after six months and 12.0% if it is repaid after twelve. A fixed fee costs more per year the sooner you leave. A 6-month renovation-and-sell business plan is not priced the way a 12-month stabilization plan is, even at the same quoted rate. All figures exclude appraisal, legal and title costs.

Now add one six-month extension at an assumed 0.5% fee ($15,000), exiting at month 18: interest of $450,000, plus $30,000, $30,000 and $15,000, totals $525,000, or 17.5% of the loan over 18 months (about 11.7% a year). Extension fees and exit fees stack, and the extension tests in the loan agreement decide whether you can use the option at all.

Exit fee vs. prepayment penalty

The two are often confused, and some loans have both.

A third term, the lockout period, is not a fee at all: it is a stretch during which prepayment is not allowed. For the full range of early-repayment structures, see our guide to commercial loan prepayment penalties.

Some exit fees are not flat. A lender may reduce the percentage if you repay within a set window, or scale it with how long the loan has been outstanding. Whether yours is flat or variable is a term to confirm, not assume.

Exit fee vs. origination fee

The origination fee is charged at closing and is often deducted from the proceeds, so it reduces the cash you receive. The exit fee is charged at payoff, so it reduces the cash you keep from a sale or refinance. Lenders sometimes quote a lower origination fee and a higher exit fee, or the reverse. The total of the two, along with the rate and the term, is what you compare. Because the exit fee is paid later, it is easy to treat as an afterthought, but it is just as certain as the fee at closing.

Why lenders charge it

A short-term lender has to deploy the money again after you repay. If a bridge loan is repaid in three months, the lender earns three months of interest and has spent underwriting and legal costs to get there. An exit fee puts a floor under the lender's return and compensates for that work. It also lets the lender quote a lower interest rate while still earning its target yield if the loan runs its full term.

That is why the fee often appears alongside a minimum interest or minimum yield clause. In some documents the lender's right to its minimum return is written as a separate "minimum interest" provision rather than as an exit fee, and the effect is similar. When you compare quotes, add up everything owed at payoff, whatever it is called.

Why exit fees matter to your plan

An exit fee changes the numbers in your exit strategy. The sale price or refinance proceeds have to cover the loan balance, the exit fee, any other payoff charges and your selling or closing costs, and still leave the profit you planned on. Check four things before you sign:

• The refinance still works after the fee. If the takeout loan is sized close to the bridge balance, a $30,000 fee comes out of your equity or requires a larger takeout. Use the refinance break-even calculator to see how long lower payments take to recover a payoff cost.
• The timeline can slip. If your project runs past the maturity date, you may owe an extension fee in addition to the exit fee and more interest.
• A sale can happen early. Selling a renovated property ahead of schedule is a good outcome, but a flat exit fee makes it more expensive per month held.
• A same-lender takeout may be cheaper. If the lender also offers permanent financing, ask whether the exit fee is waived or reduced. If it is, compare that permanent loan against the open market, not just against the fee saved.

Example: a same-lender waiver

Take our standard example: a $1,400,000 loan with a 1% exit fee is $14,000. If the lender waives the fee when it provides the refinance, the borrower saves $14,000. That is only a good deal if the new loan's rate and fees are competitive. If the permanent loan costs $600 a month more than the best alternative, the savings are used up in about 23 months ($14,000 / $600), and the borrower may be locked into a worse loan for years. The waiver is a negotiating point, not a reason to skip comparison shopping.

How to negotiate

• Ask for the fee in writing in the term sheet. The term sheet should show the percentage, the base, and what triggers it. Terms that are not in the term sheet are hard to add later.
• Use the outstanding balance as the base. A fee on the balance at payoff is lower than a fee on the original commitment if the loan has been paid down or was not fully drawn.
• Ask for a waiver or reduction on a same-lender refinance. Some lenders may agree if they keep the relationship.
• Trade it against other costs. A lower exit fee for a slightly higher origination fee, or the reverse, may suit your timeline better. Hold the project for six months and the exit fee matters more; hold it for two years and the rate matters more.
• Ask whether partial payoffs trigger it. On a loan secured by several properties, ask whether releasing one property triggers a fee on that share of the loan.
• Compare lenders on total cost. Put the rate, origination fee, exit fee, extension fees and any minimum interest in one table across all quotes, using the same hold period.

What to watch for

• The fee may be called something else. Exit fee, back-end points, payoff fee, exit charge and minimum interest can all be the same economic idea. Read the payoff section of the loan agreement, not just the term sheet.
• The base may be larger than the money you received. If the fee is figured on the full commitment, you pay on money you never drew.
• It stacks with other costs. A prepayment penalty, an extension fee and default interest can all apply on top of the exit fee, depending on how the loan ends.
• A payoff letter confirms the number. Before closing a sale or refinance, request the lender's payoff statement, which itemizes the principal, interest, fees and any exit fee owed on the payoff date, so the settlement agent and your new lender are working from the same figure.
• Do not assume it is waived. A verbal "we usually waive that" is not a contract term.

Sources: contract terms as described in lender term sheets and loan agreement forms; cost examples are arithmetic on the stated assumptions and match the bridge-loan example on /commercial-real-estate/bridge-loans. No statute or agency rule sets a commercial exit fee; the amount, base and waivers are negotiated in the loan documents.