Tap to get financing
Self-Storage Loan
Financing Options
Permanent FinancingLife Company LoansBank LoansBridge LoansCMBS LoansConstruction LoansSmall Balance FinancingSBA 504 LoansSBA 7(a) LoansCompare Financing Options →
Resources
BlogSelf-Storage InsuranceInvestor GlossaryAsset ClassesAsset Types and Attributes
For Brokers About
Get financing →
Newly Published
Aug 26 at Self-Storage Loan
Yield Maintenance
Aug 26 at Self-Storage Loan
Feasibility Study
Aug 26 at Self-Storage Loan
Operating Expenditures
Explore the Janover Network
May 8 at HUD Loans
The 2025 Developer's Guide to HUD Lender Matching
Apr 22 at Janover Inc. Investor Relations
Janover Inc. Announces Corporate Name Change to DeFi Development Corporation
Apr 16 at Janover Inc. Investor Relations
Janover Inc. to Host X Spaces Conversation on NAV Premiums
Was This Article Helpful?
Investor Glossary
3 min read

Yield Maintenance

Learn about yield maintenance and how it is utilized as a prepayment penalty in commercial real estate finance.

In this article:
  1. What Is Yield Maintenance?
  2. How to Calculate Yield Maintenance
  3. Yield Maintenance Calculator 
  4. Yield Maintenance vs. Defeasance
  5. Prepayment Alternatives to Yield Maintenance
  6. Related Questions
  7. Get Financing
Start Your Application and Unlock the Power of Choice Experience expert guidance, competitive options, and unparalleled industry expertise.
Click Here to Get Quotes →
$5.6M offered by a Bank$1.2M offered by a Bank$2M offered by an Agency$1.4M offered by a Credit UnionClick Here to Get Quotes!

What Is Yield Maintenance?

Yield maintenance — a type of prepayment penalty on some commercial real estate loans — enables a lender to receive the same yield from a prepayment of a loan that would have been received through scheduled monthly payments up to the loan's maturity date. Yield maintenance premiums were designed as a way to help make lenders indifferent to prepayment — while also making refinancing seem like a less attractive option for borrowers.

In most financing transactions, the borrower is required to pay interest on the principal loan amount. The interest that the borrower pays serves as compensation to the lender for the use of its money over a period of time. As far as lenders are concerned, interest represents their rate of return and is the basis for projected earnings. For a borrower, generally the interest on a loan makes up a portion of each and every scheduled payment, with the total value of said interest realized only once the note matures. 

Prepayment penalties such as yield maintenance were introduced to counter any loss in profit a lender would face if a borrower were to repay a loan significantly earlier than agreed upon. The yield maintenance prepayment penalty specifically stipulates that the borrower must pay the difference between the interest rate on the loan and the market interest rate on the prepaid capital up to the maturity date of the loan.

How to Calculate Yield Maintenance

Yield maintenance premium calculations use the following formula:

**Yield Maintenance = Present Value of Remaining Payments on the Mortgage x (Interest Rate - Treasury Yield*)  

***Treasury Yield = The current treasury interest rate on new debt with the same maturity date as the original loan.

Yield Maintenance Calculator 

Yield Maintenance vs. Defeasance

In commercial real estate finance — particularly with CMBS loans — prepayment risk is generally mitigated through either yield maintenance or defeasance. Both of these prepayment penalties are designed to adequately compensate a lender in the event of prepayment on the loan, albeit through different methods. That said, while yield maintenance results in the actual prepayment of the loan, defeasance instead substitutes the collateral with cash-flowing financial instruments of relative value. 

Both yield maintenance and defeasance each come with a few benefits and drawbacks. Yield maintenance, for example, generally comes with a prepayment penalty fee that borrowers must pay — and while loans with defeasance typically lack this fee, they do usually have a lockout period that prevents prepayment altogether for a set duration of time. The defeasance process is also notoriously complex, involving multiple parties and heavy analysis of financial instruments to replace the collateral on the loan. Still, while yield maintenance is the more simple option, defeasance does come with the possibility for borrowers to pay off their loans at a discounted rate. 

Prepayment Alternatives to Yield Maintenance

  • Learn about Defeasance

  • Learn about Step-Down Prepayment

Related Questions

What is yield maintenance in commercial real estate?

Yield maintenance is a type of prepayment penalty that is commonly used in commercial real estate financing of $1 million or more. It is designed to protect lenders from lost revenue when a loan is paid off early. Yield maintenance requires the borrower to pay a penalty that is equal to the difference between the interest rate of the original loan and the interest rate of a new loan that the lender could have obtained if the original loan had not been prepaid. This penalty is typically calculated as a percentage of the loan balance. Yield Maintenance Calculator and Defeasance or Yield Maintenance: Which Is Better?

How does yield maintenance work in commercial real estate?

Yield maintenance is a type of prepayment penalty that is typically used in commercial real estate financing of $1 million or more. It is designed to protect the lender from lost revenue if the loan is paid off early. The penalty is calculated by determining the difference between the interest rate of the existing loan and the interest rate of a new loan, and then multiplying that difference by the remaining principal balance of the existing loan. This amount is then paid to the lender as a penalty for early repayment.

The biggest downside of yield maintenance is that it can be more expensive than other prepayment penalties if the borrower plans to refinance at a lower interest rate. This is because the cost of yield maintenance may be greater than just continuing to make payments on the existing loan.

What are the benefits of yield maintenance in commercial real estate?

The main benefit of yield maintenance in commercial real estate is the lower capital requirements compared to defeasance. Yield maintenance can be handled with a simple (although not insignificant) payment as a one-time penalty, leaving capital available for other uses, such as renovating a property. Another advantage is its simplicity compared to defeasance. Once the calculations and payment are accepted by the lender, that’s it.

What are the drawbacks of yield maintenance in commercial real estate?

The biggest downside of yield maintenance occurs if this option is exercised in an environment where interest rates are falling. If a borrower plans to refinance at a lower interest rate, for example, the cost of yield maintenance may be greater than just continuing to make payments on the existing loan. As a result, the penalty could be far more expensive than if a loan had any one of a number of other prepayment penalties.

Source: Defeasance or Yield Maintenance: Which Is Better?

What are the alternatives to yield maintenance in commercial real estate?

The alternative to yield maintenance in commercial real estate is defeasance. Defeasance requires the acquisition of securities that offer a comparable yield to a bank. This can be a more complex process than yield maintenance, but it may be more cost-effective if interest rates are falling. Another alternative is to continue making payments on the existing loan, which may be more cost-effective than yield maintenance if interest rates are falling.

For more information, please see this article on defeasance vs yield maintenance.

How can yield maintenance be used to finance a commercial real estate purchase?

Yield maintenance can be used to finance a commercial real estate purchase by allowing the lender to protect themselves from lost revenue. The borrower pays a one-time penalty as a yield maintenance clause, which is typically lower than the capital requirements of defeasance. This leaves capital available for other uses, such as renovating a property or acquiring another building. Yield maintenance is also simpler than defeasance, as the calculations and payment are accepted by the lender once completed.

Sources: Yield Maintenance Calculator, Defeasance or Yield Maintenance: Which Is Better?

In this article:
  1. What Is Yield Maintenance?
  2. How to Calculate Yield Maintenance
  3. Yield Maintenance Calculator 
  4. Yield Maintenance vs. Defeasance
  5. Prepayment Alternatives to Yield Maintenance
  6. Related Questions
  7. Get Financing

Getting commercial property financing should be easy.⁠ Now it is.

Click below for a free, no obligation quote and to learn more about your loan options.

Get financing →

Janover: Your Partner in Growth

At Janover, we offer a wide range of services tailored to your unique needs. From commercial property loans and LP management to business loans and services for lenders, we're here to help you succeed.

Learn more about Janover →
Commercial Property Loans

Get the best CRE financing on the market.

Explore Financing Options →
LP Management

Syndicate deals on autopilot with Janover Connect.

Discover LP Management →
Business Loans

Match with the right kind of loan, in record time.

Find Business Loans →
For Lenders

Supercharge your loan pipeline. Unlock more deals.

Boost Your Loan Pipeline →
Self-Storage Loan

Self-Storage Loan is a Janover company. Please visit some of our family of sites at: Multifamily Loans, Commercial Real Estate Loans, SBA7a Loans, HUD Loans, Janover Insurance, Janover Pro, Janover Connect, and Janover Engage.

Janover Tech Inc.

6401 Congress Ave
Ste 250
Boca Raton FL 33487

[email protected]

Site Information

Privacy Policy
Terms of Use


For Commercial Mortgage Brokers

This website is owned by a company that offers business advice, information and other services related to multifamily, commercial real estate, and business financing. We have no affiliation with any government agency and are not a lender. We are a technology company that uses software and experience to bring lenders and borrowers together. By using this website, you agree to our use of cookies, our Terms of Use and our Privacy Policy. We use cookies to provide you with a great experience and to help our website run effectively.

Freddie Mac® and Optigo® are registered trademarks of Freddie Mac. Fannie Mae® is a registered trademark of Fannie Mae. We are not affiliated with the Department of Housing and Urban Development (HUD), Federal Housing Administration (FHA), Freddie Mac or Fannie Mae.

This website utilizes artificial intelligence technologies to auto-generate responses, which have limitations in accuracy and appropriateness. Users should not rely upon AI-generated content for definitive advice and instead should confirm facts or consult professionals regarding any personal, legal, financial or other matters. The website owner is not responsible for damages allegedly arising from use of this website's AI.

Copyright © 2025 Janover Tech Inc. All rights reserved.

+

Fill out the form below and get the pricing and terms banks can't compete with.