Defeasance Cost Calculator

Defeasance buys securities to discharge CMBS. This calculator sizes cost.

Balance

Note rate %

Treasury yield %

Remaining years

Transaction fee

Total defeasance cost

$1,302,000

Securities premium

$1,122,000

Rate spread pts

1.5

How the math works

Securities premium ≈ balance × rate delta × remaining years × duration factor. Total includes transaction fee.

Start defeasance math 6-12 months before actual prepayment — the cost is highly sensitive to Treasury yields, and moves of 50-100 bps in the Treasury curve can swing defeasance cost by hundreds of thousands. Sometimes waiting 3-6 months saves more than it costs.

How to Use

Enter loan balance.
Enter note rate %.
Enter current Treasury yield %.
Enter remaining term years.
Enter defeasance transaction fee.
Read total defeasance cost.

Frequently Asked Questions

How defeasance works?

Borrower buys portfolio of U.S. government securities (or agency debt) that cash-flows loan payments through maturity. Securities substituted for real estate collateral. Original loan continues to exist; asset freed for sale/refi.

Cost drivers?

Larger gap between note rate and current Treasury yield = higher cost. When rates drop (securities expensive), defeasance cost can exceed 10-25% of balance. When rates rise (securities cheap), defeasance can be positive (borrower receives money).

Transaction fees?

Defeasance consultant: $25-125k. Legal (borrower + lender): $50-200k. Servicer fee: $25-75k. Accountant review: $10-30k. Securities intermediary: 1-5 bps of purchase. Total $100-500k common on mid-size loans.

How often should I rerun this?

Rerun this calculator whenever inputs change materially — new rent roll data, rate moves, loan balance updates, or quarterly operating data. For active deals, monthly refresh is typical. For stabilized assets under monitoring, quarterly is fine. Treat the output as a decision tool, not a one-time answer — market conditions evolve and so should your analysis.