CRE 101 · deweyluong.realtor

Defeasance and Yield Maintenance Explained: The Real Cost of Exiting a Georgia Commercial Loan Early

A fixed-rate commercial loan is a promise the lender has already sold forward: the interest stream is priced, pooled, and counted on. Leaving early means making the lender whole for the part of that stream it cannot replace — and the loan documents name the price in advance. On the made-up loan worked on this page, a $4,000,000 interest-only balance at 6.00% with exactly 4 years left, exiting through yield maintenance costs $290,392 when Treasury yields sit at 4.00%, while defeasing the same loan takes a Treasury portfolio costing $4,290,392 before fees. Same loan, same day: the exit route is a six-figure decision. By Túy “Dewey” Luong, CCIM — Founding Broker, SERHANT. Atlanta · 318 closed sales / $281.2M career volume · 678-707-2498 · dewey.luong@serhant.com · https://deweyluong.realtor

The worked example uses a made-up loan with simplified terms — annual payments on an interest-only loan — so the arithmetic can be checked by hand. Real loans compound monthly and are governed by the exact words of the note. This page is general education only, not legal, tax, or financial advice — have your attorney and your servicer price a live exit before you act.

Start at the lockout: the years when there is no exit at any price

• A prepayment lockout is a flat prohibition: for a stated period after origination — and, on a securitized loan, after the loan enters a CMBS pool — the borrower may not prepay at all, for any amount. It is not a penalty; it is a closed door. A sale during the lockout must work around the debt, usually through a loan assumption if the documents allow one.
• Why lenders insist on it: a CMBS loan is sold to bond investors as a predictable stream of payments, and its ratings and REMIC tax status assume that stream arrives on schedule. Uncontrolled early exits break the pool's math.
• Find this date first: before pricing a sale or refinance, confirm whether the loan is still locked, when the lockout ends, and which exit follows — yield maintenance, defeasance, a step-down schedule, or a sequence of them. Breaching a lockout can trigger default remedies far larger than any charge on this page.

The four exit structures, side by side

• 1. Lockout — no exit: prepayment is prohibited for the stated period. The practical routes are an approved assumption by a buyer, or waiting.
• 2. Yield maintenance — pay the lost spread and retire the loan: the borrower prepays in full and pays a one-time charge equal to the present value of the interest the lender will lose: $290,392 on the example loan. The debt is gone and the property is free.
• 3. Defeasance — replace the property with securities: the borrower buys Treasury securities that replicate every remaining payment, pledges them in place of the property, and walks away from a released property while the loan continues under a successor borrower. On the example loan the portfolio costs $4,290,392, plus third-party fees.
• 4. Step-down and the open window — a fixed schedule, then free: a step-down penalty is a stated percentage of the balance that falls by year — for example 3%, then 2%, then 1% — regardless of where rates move. A 3% year on the example balance is a flat $120,000. After the penalty period, most loans reach an open window, commonly the last few months before maturity, when prepayment is free ahead of the balloon payment.

Yield maintenance, step by step: the worked example

• The loan: a made-up, CMBS-style, interest-only loan with a balance of $4,000,000 and a note rate of 6.00%. Annual interest is $240,000, and exactly 4 years remain: 4 annual interest payments of $240,000, with the $4,000,000 principal returned at the end of year 4. An interest-only loan keeps the example clean, because the balance never amortizes.
• Step one — the reinvestment rate: if the lender gets its $4,000,000 back today, it can reinvest only at current Treasury yields. The example uses 4.00%. Every formula compares the note rate with this reinvestment rate on the exit date.
• Step two — the annual differential: the lender loses the spread between 6.00% and 4.00% — 2.00% — on $4,000,000, which is $80,000 a year for 4 years. Undiscounted, that is $320,000. No borrower should offer the undiscounted figure: money paid today is worth more than money spread over 4 years.
• Step three — discount to today: the present value of $80,000 a year for 4 years, discounted at 4.00%, uses the annuity factor (1 − 1.04⁻⁴) / 0.04 = 3.629895, approximately 3.6299 — the same discounted cash flow math that values a property.
• Step four — the charge: $80,000 × 3.629895 = $290,392, rounded to whole dollars. The borrower repays the $4,000,000 balance and pays $290,392 for repaying it 4 years early.
• Step five — test the floor: most formulas carry a minimum, commonly 1% of the balance. Here 1% of $4,000,000 is $40,000. The formula amount, $290,392, is greater, so the formula governs. In a high-rate world the order flips.

When Treasury yields rise, the penalty falls: the sensitivity case

• Same loan, Treasury yield at 5.50%: the differential narrows to 6.00% minus 5.50% — 0.50% — which is $20,000 a year instead of $80,000. The lender can reinvest almost as well as the loan it is losing, so there is far less to maintain.
• The factor changes too: discounting at 5.50%, the 4-year annuity factor is (1 − 1.055⁻⁴) / 0.055 = 3.505150. The charge is $20,000 × 3.505150 = $70,103, rounded to whole dollars.
• The swing is the lesson: a 150-basis-point rise in Treasury yields cuts the penalty from $290,392 to $70,103 — a fall of $220,289. A sensitivity analysis at several Treasury levels before listing can decide whether a sale pencils.
• Compare the step-down: a 3% year costs $120,000 whatever Treasury yields do. At 4.00% the step-down is cheaper ($120,000 against $290,392); at 5.50% yield maintenance is cheaper ($70,103 against $120,000). The exit-date rate environment decides.

Defeasance, step by step: the loan stays, the property leaves

• Step one — size the replacement portfolio: a defeasance consultant schedules every remaining payment — here 4 payments of $240,000 plus the $4,000,000 principal at the end of year 4 — and prices Treasury securities whose cash flows land on those dates. Discounted at 4.00%, that portfolio costs $240,000 × 3.629895 plus $4,000,000 / 1.04⁴ — $4,290,392 in all.
• Read that number against the balance: $4,290,392 is the $4,000,000 balance plus $290,392 — the same $290,392 as the yield maintenance charge. Buying back the full payment stream at Treasury yields costs the balance plus the present value of the lost spread. Defeasance then adds fees on top.
• Step two — substitute the collateral: the securities are pledged in place of the property and the mortgage is released, so the property can be sold or refinanced free of the loan, while the lender's cash flow continues — funded by Treasuries instead of rent.
• Step three — install the successor borrower: a new single-purpose entity assumes the loan as restructured against the securities, and the original borrower is released. The loan itself is never repaid and never leaves the CMBS pool.
• Step four — close the paper: a custodian holds the portfolio and routes each payment; accountants verify it covers every date; counsel delivers the legal opinions the servicer requires. Those third-party costs — consultant, legal, successor borrower, and accountant — sit on top of the portfolio: a typical illustrative range is $25,000 to $50,000, not a quote.
• The two-year rule: stated plainly, defeasance generally cannot happen in the first two years after a CMBS securitization. REMIC tax rules protect the pool's status in its early life, so defeasing too early can endanger the whole trust — read the lockout and defeasance window together, alongside the prepayment penalties lesson.

Who uses which: CMBS, life companies, banks, and agency lenders

• CMBS and conduit loans: defeasance is the standard exit. The loan has been sold into a bond pool and cannot simply be repaid without disturbing bondholders and the REMIC structure. After the lockout and two-year period, defeasance is typically the only early exit — price it before signing.
• Life-company loans: yield maintenance is the classic form. A life insurer holds the loan on its own balance sheet, so a cash charge that replicates the lost yield fits its book directly, often with a stated floor.
• Bank loans: step-downs and open windows dominate. A bank commonly uses a declining percentage — the 3-2-1 pattern — and an earlier open window: cruder than a formula, cheaper to administer.
• Agency and government-backed loans vary by program: agency multifamily debt carries its own published regimes, and SBA and USDA structures carry their own rules — the SBA 504 loan lesson covers one such schedule. Never import one lender class's exit into another's loan file.

What it means at a sale: defease, assume, or wait

A Georgia owner selling with 4 years left on a loan like the example has a menu, not one exit cost. Defeasance costs a $4,290,392 portfolio plus $25,000 to $50,000 of illustrative fees, funded at closing out of sale proceeds. Yield maintenance, where allowed instead, costs the $4,000,000 payoff plus $290,392. An approved assumption costs the buyer a fee and underwriting, and the seller no penalty at all — but only if the buyer wants a 6.00% loan with 4 years left. Waiting for the open window costs nothing in penalties and everything in timing.

Who pays is a contract term, not a custom: the seller owns the debt, so the exit cost starts on the seller's side of the settlement statement. A seller who discovers a $290,392 charge after accepting an offer has, in substance, accepted $290,392 less than the headline price. Model the exit at several Treasury levels before listing, confirm assumption language with the servicer, and let net proceeds — the same discipline a cash-out refinance analysis applies — set the list price.

Cho nhà đầu tư và chủ doanh nghiệp người Việt

Yield maintenance là khoản phí khi trả nợ vay thương mại trước hạn, tính bằng giá trị hiện tại của phần lãi mà bên cho vay mất đi. Defeasance là cách thoát khác: khoản vay không được trả hết, mà người vay mua một danh mục chứng khoán Kho bạc (Treasury) đủ để trả thay mọi kỳ thanh toán còn lại, thế chấp danh mục đó thay cho bất động sản, để bất động sản được giải chấp và bán đi; một người vay kế nhiệm (successor borrower) tiếp quản khoản vay được bảo đảm bằng chứng khoán. Trước cả hai cách thoát này còn có giai đoạn lockout — khóa trả trước — khi hồ sơ vay cấm trả sớm hoàn toàn, và hình thức đơn giản hơn là step-down: phí cố định theo phần trăm dư nợ, giảm dần theo năm và không phụ thuộc vào lãi suất.

Ví dụ minh họa của trang này: khoản vay chỉ trả lãi (interest-only) kiểu CMBS với dư nợ $4.000.000, lãi suất cố định 6,00%, lãi mỗi năm $240.000, còn đúng 4 năm và hoàn gốc vào cuối năm thứ 4. Khi lợi suất Kho bạc là 4,00%, chênh lệch là 2,00% — tức $80.000 mỗi năm, tổng $320.000 chưa chiết khấu. Chiết khấu ở mức 4,00% với hệ số niên kim 3,629895 (xấp xỉ 3,6299), yield maintenance là $80.000 × 3,629895 = $290.392, cao hơn nhiều so với mức sàn 1% là $40.000 nên công thức được áp dụng. Nếu lợi suất Kho bạc tăng lên 5,50%, chênh lệch chỉ còn 0,50% — $20.000 mỗi năm — hệ số là 3,505150 và phí giảm còn $70.103, tức giảm $220.289. Với defeasance trên cùng khoản vay, danh mục Kho bạc tốn $4.290.392 — dư nợ $4.000.000 cộng $290.392 — chưa kể phí bên thứ ba, thường minh họa trong khoảng $25.000 đến $50.000. So sánh thêm: step-down 3% trên cùng dư nợ là $120.000 cố định, không đổi theo lãi suất. Lưu ý defeasance thường không thực hiện được trong hai năm đầu sau khi khoản vay CMBS được chứng khoán hóa. Điều cần nhớ nhất: tính chi phí thoát vốn trước khi niêm yết bán, vì chi phí này thuộc về bên bán trừ khi hợp đồng quy định khác. Đây là thông tin giáo dục chung, không phải tư vấn pháp lý hay tài chính; hãy nhờ luật sư và đơn vị quản lý khoản vay báo giá chính xác trước khi hành động.

Frequently asked questions

What is yield maintenance?

Yield maintenance is a prepayment charge designed to make the lender whole for the interest it loses when a loan is repaid early. In the worked example on this page, a $4,000,000 interest-only loan at 6.00% has 4 years left, Treasury yields are 4.00%, and the 2.00% differential is $80,000 a year. Discounted at 4.00% over 4 years with an annuity factor of 3.629895, approximately 3.6299, the charge is $290,392 — well above the 1% floor of $40,000, so the formula amount governs. The exact formula and any floor are in the loan documents, so read the note before modeling an exit.

What is defeasance, and how is it different from prepaying the loan?

In defeasance the loan is not repaid at all. The borrower buys a portfolio of Treasury securities sized to make every remaining loan payment on schedule, pledges that portfolio in place of the property, and the property is released so it can be sold or refinanced. A successor borrower takes over the securities-funded loan. On the worked example on this page, that portfolio costs $4,290,392 — the $4,000,000 balance plus $290,392 — before third-party fees. Prepayment with yield maintenance, by contrast, retires the debt and pays the lender a one-time charge.

Why does the yield maintenance penalty get smaller when Treasury yields rise?

Because the penalty replaces only the spread the lender cannot reinvest. If Treasury yields rise from 4.00% to 5.50% on the same loan, the differential narrows from 2.00% to 0.50% — from $80,000 to $20,000 a year — and the 4-year annuity factor at 5.50% is 3.505150, so the charge falls to $70,103, a drop of $220,289. If Treasury yields met or exceeded the 6.00% note rate, the formula amount would approach zero and only any stated floor, such as 1% of the balance, would remain.

Can a buyer just assume the loan instead of defeasing or paying yield maintenance?

Often, yes — if the documents allow assumption and the servicer approves the buyer, an assumption keeps the loan in place and avoids both a yield maintenance charge and a defeasance. That path has its own costs: an assumption fee, lender underwriting of the buyer and any new guarantor, and a rate and maturity the buyer must actually want. Sellers should compare assumption, defeasance, and holding to the open window on net proceeds before listing, because the cheapest exit depends on rates, remaining term, and the buyer's financing.

Defeasance và yield maintenance là gì, và chủ sở hữu người Việt ở Georgia cần nhớ điều gì nhất trước khi bán hoặc tái cấp vốn?

Yield maintenance là khoản phí trả trước để bù cho bên cho vay phần lãi mất đi khi khoản vay được trả sớm; defeasance không trả hết nợ mà thay tài sản thế chấp bằng một danh mục chứng khoán Kho bạc đủ để trả mọi kỳ thanh toán còn lại, để bất động sản được giải chấp và bán đi. Trong ví dụ của trang này, khoản vay $4.000.000 lãi suất 6,00% còn 4 năm, lợi suất Kho bạc 4,00%: chênh lệch $80.000 mỗi năm có giá trị hiện tại là $290.392, và danh mục defeasance tốn $4.290.392 chưa kể phí bên thứ ba. Nếu lợi suất Kho bạc tăng lên 5,50%, phí giảm còn $70.103. Điều cần nhớ nhất là mô hình hóa chi phí thoát vốn trước khi niêm yết bán, và đọc kỹ điều khoản khóa trả trước, yield maintenance và defeasance trong hồ sơ vay. Đây là thông tin giáo dục chung, không phải tư vấn pháp lý hay tài chính.