Most often used in commercial real estate as the pre-payment requirement on Life Insurance Company and Agency loans,
Yield Maintenance is the process of releasing a commercial property from the lien of the mortgage by effectively paying the lender all remaining interest on the loan, at a present value discount.
Consequently, defeasance is more expensive than
yield maintenance.
The Addendum to the note deals with such matters as prepayments,
yield maintenance and exculpation.
The fixed-rate loans have a seven-year term with five years of
yield maintenance.
5 years interest only,
yield maintenance of seven years, and a 30-year amortizing schedule.
While properties that have freely prepay-able mortgages have been actively refinancing their mortgages, more and more owners of multifamily and healthcare properties are paying sometimes large prepayment penalties--often in the form of defeasance or
Yield Maintenance payments --for the sake of locking in today's low rates for the longest term possible.
For instance, well-heeled borrowers in New Jersey are now much more willing to pay a
yield maintenance penalty--essentially a form of pre-payment penalty.
5 years of
yield maintenance, and a 30year amortization schedule payable on an actual/360 basis.
