Yield Maintenance: Calculator, Alternatives, Important Considerations
Learn what yield maintenance is, how it is determined, and use our helpful tool to assess the yield maintenance of your asset.
What Is Yield Maintenance?
Yield maintenance is a prepayment penalty. It makes a lender whole for the interest it gives up when a fixed-rate loan is retired early. The premium is the present value of the payments still scheduled between the payoff date and maturity, discounted at the Treasury yield the lender can earn instead, less the balance being repaid. Most notes also set a floor, commonly 1% of the balance. The number never reaches zero.
That is why yield maintenance behaves nothing like a flat percentage. When Treasury yields sit at or above your note rate, there is no lost yield left to replace and the premium drops to the floor. When they sit well below it, the premium can reach seven figures on a mid-size loan. Rate direction decides the cost, not loan size.
Yield Maintenance Calculator
Yield Maintenance Calculator
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How This Calculator Computes the Premium
The tool amortizes the loan forward to your payoff date. That gives the balance actually owed that day. It then discounts the remaining scheduled payments and the balloon due at maturity at the Treasury yield you enter, and subtracts that balance. You get whichever is larger: the result or your minimum penalty.
The fields load with a worked example. A $5,000,000 loan at 6.00% on a 30-year amortization and a 10-year term, prepaid with 36 months left, against a 4.00% Treasury and a 1% floor. The balance at payoff is $4,481,969 and the premium is $245,262, or 5.5% of that balance. Now set the Treasury field to 6.00%. The differential disappears and the premium falls to $44,820. That is the floor doing all of the work.
Estimates only. Your note sets the formula, the reinvestment rate it references, and the floor, and all three vary between lenders. Confirm the figure with your servicer before you sign anything that depends on it.
What Do I Use for the Treasury Yield?
Match the remaining term, not the original maturity. Use the constant maturity Treasury yield whose term is closest to the time left on the loan. With 36 months to run, that is the 3-year point on the daily par yield curve Treasury publishes at home.treasury.gov. Some notes name a different reinvestment convention, and a few add a spread on top. Get it close. On the worked example above, moving this field 50 bps in either direction changes the premium by about $63,000 on a $4.5 million balance.
Key Yield Maintenance Considerations
Lenders and Yield Maintenance
Yield maintenance appears on most fixed-rate commercial real estate debt above $1 million. Life companies, banks and conduit lenders all use it, for different reasons. A balance-sheet lender is protecting income it has already matched against a funding cost. A conduit lender is doing something narrower. It is telling bond buyers what the cash flow is worth if the borrower leaves early, which is part of what lets the certificates be priced at all.
Borrowers and Yield Maintenance
Borrowers usually meet yield maintenance at the worst possible moment, which is a sale or a cash-out refinance three or four years into a ten-year term. Two features soften it. Notes carrying yield maintenance are often assumable, so a buyer can take the existing debt instead of triggering a payoff. And yield maintenance rarely carries the hard lockout period that defeasance does, so the option to pay and leave exists from the start.
Price the premium before you sign a purchase and sale agreement. It is quotable in a day, and it has ended more deals than any other line on a payoff statement.
Yield Maintenance vs. Alternative Prepayment Penalties
Lenders manage prepayment risk three ways. They are not interchangeable, and which one your loan carries is usually decided by how the loan is funded rather than by negotiation.
Yield maintenance - Pay cash, the lien is released, and you are done. The cost floats with Treasuries, so it cannot be fixed in advance.
Defeasance - No cash penalty. The borrower buys a portfolio of government securities that replicates the remaining payments and substitutes it for the property as collateral. Treasury regulations require the substitute collateral to consist solely of government securities, and bar any release within two years of the securitization startup day.
Graduated or step-down prepayment - A published schedule, for example 5% in year one falling a point a year. It is the only one of the three you can price on the day you close.
Defeasance conditions confirmed against 26 CFR 1.860G-2(a)(8)(ii) on the eCFR, July 29, 2026. Your loan documents control in every case.