Finance category
Mortgage, loan, investing, tax, and money calculators.
Yield Maintenance Calculator
Commercial mortgages commonly carry yield maintenance — a make-whole prepayment penalty that compensates the lender for interest they would've earned. Penalty = PV of lost interest at current treasury + spread. This calculator sizes the exit cost at any prepayment date.
Yield maintenance penalty
$81,170
Total payoff (principal + YM)
$2,581,170
Penalty as % of balance
3.25%
Rate shortfall (loan − reinvest)
1.00%
Annual interest shortfall
$25,000
Reinvest yield (treasury + spread)
4.25%
How the math works
On $2.5M balance with 42 months remaining at 5.25% loan rate and 4.25% reinvest yield (treasury 4% + 0.25% spread): rate shortfall 1% × $2.5M = $25K/yr × 42/12 = $87.5K undiscounted. PV at reinvest yield drops it slightly: ~$84K penalty, 3.4% of balance.
If treasury rose to 5.25% (making reinvest yield 5.5%), shortfall would be negative and YM floored at zero. Watch the treasury curve when planning a refinance of a YM loan.
How to Use
- Enter remaining principal, loan rate, and months remaining on the current term.
- Enter the current treasury rate for a term matching remaining months (roughly).
- See the PV-of-lost-interest penalty and total payoff amount.
Frequently Asked Questions
When do I pay yield maintenance?
Any time you pay off early — refinance, property sale, or voluntary paydown. Often waived in the last 3-6 months of term (open-to-prepay window). CMBS and insurance-company loans typically have YM; banks sometimes use step-down penalties instead (5/4/3/2/1%).
What's defeasance vs YM?
Defeasance is a securities-backed substitute: buyer of the loan gets a portfolio of Treasury securities matching the loan's remaining cash flows. More complex and expensive to execute but sometimes required by CMBS loan docs. YM is a cash payment to the lender.
How do I minimize YM?
Wait for the open-to-prepay window. Sell the property with loan assumption instead of payoff. Time refinance to late in term. Negotiate YM cap at loan origination (e.g., 'YM or 3% of balance, whichever is less').
Can YM ever be zero?
Yes — if current treasury + spread ≥ original loan rate, the make-whole is zero or negative. In rising-rate environments, YM can be trivial. In falling-rate environments (like 2019-2021), YM spiked to 5-15% of balance.
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