Why Use This Tool?
Unlike residential mortgages, commercial real estate loans (like CMBS or agency debt) often come with massive prepayment penalties designed to guarantee the lender's expected yield. The two most common structures are Yield Maintenance and Defeasance. Both require the borrower to pay a penalty equal to the present value of the remaining interest payments, discounted at the current corresponding Treasury rate.
This calculator estimates the Yield Maintenance penalty by evaluating the spread between your original note rate and the current market Treasury rate. When Treasury rates fall, the lender's replacement yield drops, meaning your prepayment penalty skyrockets. Conversely, in a high-interest-rate environment, the penalty may drop to a standard 1% minimum floor.
Property owners use this tool to determine their Refinance Break-Even Point. By comparing the massive upfront penalty against the monthly cash flow savings generated by refinancing at a lower rate, you can mathematically decide whether it makes sense to break the loan today or wait out the lockout period.
Maximizing Efficiency
The Yield Maintenance / Defeasance Break-Even tool is designed to save you time and reduce errors. Instead of manual calculations, get instant, accurate results that help you make better investment decisions.