$
Outstanding principal balance today
%
Your original note rate (not market rate)
mo
Months left until loan maturity
%
Use Treasury maturity closest to remaining term
$
Used to calculate monthly payment (or enter payment below)
mo
Total original term — e.g. 120 for 10-year loan
Yield Maintenance Penalty
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Sources & Methodology
Yield maintenance formula based on standard CRE lending practices and Fannie Mae/Freddie Mac multifamily loan guidelines. Updated March 2026.
Fannie Mae Multifamily — Loan Products
Fannie Mae multifamily lending guidelines including yield maintenance and prepayment provisions
Federal Reserve H.15 — Treasury Rates
Current US Treasury constant maturity rates used as the discount rate in yield maintenance calculations
SEC EDGAR — CMBS Prospectuses
CMBS loan documents detailing yield maintenance calculation methodology and Treasury rate selection
Methodology: Monthly payment = PMT(loan rate/12, original term, original balance). PV of remaining payments = PV(Treasury rate/12, remaining months, monthly payment). Yield Maintenance = MAX(PV of remaining payments − current balance, 1% × current balance). This matches the standard formula used by Fannie Mae, Freddie Mac, and most CMBS lenders.
⏱ Last reviewed: March 2026
What Is Yield Maintenance & How Is It Calculated?
Yield maintenance is a prepayment premium charged on commercial real estate (CRE) loans when a borrower pays off the loan before maturity. It's designed to make the lender "whole" — ensuring they receive the same total return they would have earned had the loan run to term.
The Yield Maintenance Formula
YM Penalty = MAX( PV(remaining payments at Treasury rate) − Loan Balance , 1% × Loan Balance )
Step 1: Calculate monthly payment using original loan rate, term, and balance
Step 2: Find PV of those remaining payments discounted at the current Treasury rate
Step 3: Subtract current outstanding balance
Step 4: Apply minimum floor (usually 1% of balance)
Example: $2.5M balance, 6.5% loan rate, 60 months remaining, 4.2% Treasury rate
Monthly payment ≈ $19,900 | PV at 4.2% ≈ $2,617,000 | Penalty ≈ $117,000
Step 2: Find PV of those remaining payments discounted at the current Treasury rate
Step 3: Subtract current outstanding balance
Step 4: Apply minimum floor (usually 1% of balance)
Example: $2.5M balance, 6.5% loan rate, 60 months remaining, 4.2% Treasury rate
Monthly payment ≈ $19,900 | PV at 4.2% ≈ $2,617,000 | Penalty ≈ $117,000
Why Yield Maintenance Exists
When interest rates fall, borrowers want to refinance at lower rates — but this hurts lenders who locked in a higher-rate loan. Yield maintenance transfers that interest rate risk back to the borrower, making CRE lenders willing to offer fixed-rate loans in the first place. Without prepayment protection, fixed-rate commercial loans would be much less available or more expensive.
Yield Maintenance vs. Defeasance vs. Step-Down
Commercial mortgages use three main prepayment structures:
- Yield maintenance: Cash penalty = PV of lost interest. Simpler than defeasance but still expensive when rates have fallen significantly.
- Defeasance: Replace collateral with Treasury/agency securities. More complex, requires a defeasance consultant, but removes the property from the loan.
- Step-down penalties: Fixed percentage declining over time (e.g., 5-4-3-2-1%). Simpler and sometimes cheaper than yield maintenance — depends on rate environment.
💡 Timing Strategy: Yield maintenance penalties shrink as interest rates rise (because the Treasury discount rate rises, reducing the PV of remaining payments). If you're considering prepaying, run the calculation at different Treasury rate scenarios. In rising rate environments, yield maintenance can sometimes be near zero.
Frequently Asked Questions
Yield maintenance is a prepayment penalty on commercial mortgages that compensates lenders for lost interest when a loan is paid off early. The penalty equals the present value of all remaining scheduled interest payments, discounted at a current Treasury rate. It ensures the lender earns the same total return as if the loan had run to maturity.
Calculate the monthly payment using the original note rate and term. Then find the present value of all remaining payments using the current Treasury rate as the discount rate. Subtract the current loan balance from this PV. The result (if positive) is the yield maintenance fee. Most loan documents set a minimum of 1% of the outstanding balance.
Yield maintenance is a cash payment to the lender equal to the PV of lost interest. Defeasance replaces the loan's real estate collateral with government securities that generate equivalent cash flows — the property is released from the lien but the loan continues on paper until maturity. Defeasance is typically used for CMBS loans and requires a defeasance consultant, bond purchase, and legal work — it's more complex but may be cheaper in some rate environments.
Use the Treasury constant maturity rate with a term closest to your remaining loan term. Your loan documents specify the exact index — most commonly the 5-year, 7-year, or 10-year Treasury. Get current rates from the Federal Reserve H.15 release at federalreserve.gov/releases/h15. The lower the Treasury rate relative to your loan rate, the higher your yield maintenance penalty.
Yield maintenance tends to be cheaper when Treasury rates are high (close to or above your loan rate), because the PV of remaining payments approaches the loan balance — reducing the penalty toward zero or the 1% minimum. Defeasance tends to be cheaper when Treasury rates are low relative to the loan rate, because purchasing low-yield bonds to match high-rate loan payments costs less than paying the full yield maintenance cash penalty.
Generally yes for business and investment properties — yield maintenance penalties are typically deductible as a business expense or investment interest expense in the year paid. The IRS generally treats these as additional interest. However, tax treatment depends on your specific situation, loan type, and property use. Always consult a qualified CPA or tax attorney before relying on any deduction.
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