The Quick Read: Timing a sale around this penalty starts with learning which prepayment structure your note actually carries, then pricing the exit on the date the payoff closes, not the date the sale contract is signed, because a calendar-based step-down and true yield maintenance behave very differently. A step-down changes on fixed dates. True yield maintenance also moves with Treasury yields and the months left on the note. The penalty never touches your coverage ratio. It only hits your net proceeds when you sell or refinance.
- Read the note and the prepayment rider first. The structure was fixed at signing.
- A step-down moves with the calendar. Yield maintenance moves with Treasury yields and remaining term.
- The loan year of the payoff closing date usually sets the price, not the contract date.
- Treat the penalty as one more selling cost next to commission and legal fees.
- Ask the servicer for a written payoff statement before you list, and again before you sign a contract.
What Is Yield Maintenance, Really?
Yield maintenance is a prepayment premium that leaves the lender whole when you pay off early. The lender gets the yield it would have earned if the note ran to maturity. You pay it as a lump sum at the sale or refinance closing, and it is math, not a negotiation.
Pensford, an advisory firm, describes the penalty as roughly the present value of the interest the lender gives up, built on the gap between the note’s fixed interest and the Treasury yield for the same remaining term. SmartAsset publishes a simplified version: the present value of the remaining payments, multiplied by the note’s rate minus a comparable Treasury yield.
Two plain-English consequences follow. When Treasury yields sit below the note’s rate, the gap is wide and the penalty grows. When yields rise above the note’s rate, the penalty can shrink toward its floor. Many formulas floor the cost at zero or at a minimum percentage. The actual formula is whatever your note says, and there is no single universal version.
A step-down is the other common structure. It charges a percentage of the balance being repaid, set by the loan year. A schedule that falls one point each year, such as 5-4-3-2-1, shows the shape (that is an illustration, not a quote). It has nothing to do with Treasury yields.
Is This Penalty Even on Your Note?
Often it is not. On most single-property DSCR loans placed through the wholesale network Lendmire works with, the prepayment term is a step-down schedule or a zero-prepay option. True yield maintenance is less common there, and you should never assume it.
The five-year note with yield maintenance sits in a different product: the rental portfolio term loan. That is one loan covering five or more rental properties or units. Its leverage reaches up to 75% of value, loan sizes run from $500,000 to $50,000,000 (larger balances on review), and terms come in fixed 3-, 5-, 7- and 10-year versions with a balloon at maturity. The prepayment structure on that loan is yield maintenance, with a 54-month period on the five-year note and 114 months on the ten-year note. All of this is subject to lender guidelines. Check your own rider to see exactly when the open period begins.
If your note is a standard 30-year single-property loan, you are probably dealing with a step-down. The timing logic below still helps, but the Treasury math does not apply.
Here is a read-the-rider checklist. Pull the note and the prepayment addendum, then confirm:
- Structure type. Step-down, flat percentage, yield maintenance, make-whole, or none.
- Benchmark. Which Treasury yield is used, and on what date it is set.
- Floor. Whether the premium has a minimum.
- Window. How many months the penalty runs, and whether the last stretch of the term is open.
- Trigger. Whether a full payoff, a large partial paydown, a sale, a refinance, or all of them count.
- Carve-outs. Whether a bona fide sale is treated differently, or whether you may prepay a limited amount each year.
- Assumption and release language. Whether a buyer can take over the loan, and how one property leaves a pool.
If you cannot tell from the documents, ask the servicer in writing. Do not guess. The answer changes the whole plan.
How the Number Gets Built
The cost comes from a handful of inputs. Each one either moves with the calendar, moves with the market, or sits on the page already.
| Input | Where it comes from | Moves with |
|---|---|---|
| Balance being repaid | Servicer payoff statement | Principal paid down |
| Note’s fixed interest | Your note | Nothing; fixed |
| Comparable Treasury yield | Benchmark in the rider | Market, daily |
| Remaining term | Payoff date vs. maturity | The calendar |
| Floor or minimum | Your rider | Nothing; fixed |
Walk through the logic in order.
1. Find the remaining term on the payoff date.
2. Pick the Treasury benchmark for that same term, on the date the rider says to set it.
3. Subtract the Treasury yield from the note’s interest. If the result is zero or negative, the floor takes over.
4. Take the present value of the remaining payments, discounted on the stated basis.
5. Multiply by the gap, then check the result against the floor.
Make-whole is a harsher cousin. Per Pensford, it uses the present value of all remaining principal and interest, including the balloon, minus the outstanding principal. Same idea, bigger bite.
Run the logic on a pool of five rentals sold on the same day, once with Treasury yields well below the note’s interest and once with yields above it. Same balance, same remaining term. The first case produces a large premium. The second can land on the floor. That is why a payoff statement matters more than any rule of thumb.
Timing Matrix: Sale Date Against Rate Direction
Two forces work against each other. Each month that passes shortens the remaining term, which tends to shrink the premium. Treasury yields can swing the other way. You cannot predict yields, but you can see the calendar.
| Situation | Effect on cost | What to do |
|---|---|---|
| Months pass, yields flat | Cost drifts down | Waiting helps, slowly |
| Yields fall below note’s rate | Cost rises | Price the sale now, not later |
| Yields rise above note’s rate | Cost shrinks toward floor | Selling inside the window gets cheaper |
| Step-down date approaches | Cost drops at the date | Compare waiting cost to the saving |
| Final stretch of term is open | Penalty gone | Aim the closing date here |
Notice what is missing: a rule that says wait. Yield maintenance is a bet on rate direction, and the borrower carries that risk. A step-down shifts the risk to calendar timing instead. Whether to wait for a step-down date is a genuine toss-up. Waiting can save money, but the carry and market risk on the property may eat the saving.
A decision timeline that works
Count backward from the date you want the sale to close.
1. Before you list. Read the rider. Request a written payoff statement with a payoff date and a good-through date.
2. At listing. Put the premium into the net-proceeds math below. Decide your floor price with the penalty in the number.
3. At contract. Re-request the statement. Treasury yields move, so the figure can change.
4. Before closing. Re-request again if the closing slips across a month-end or a step-down date.
5. At closing. The title company pays the servicer from proceeds. The penalty comes out of your side.
The Walk-Away Math
Treat the penalty as one more selling cost. Put it beside commission, transfer costs and legal fees, then ask whether your net proceeds still make sense.
Picture three paths for a pool with a few years left on the note.
- Sell now. You pay the premium on today’s yields and remaining term. You get certainty.
- Wait for a step or the open window. You save some or all of the premium. You pay the carrying cost and take market risk on the property.
- Pass the loan to a buyer. If the documents allow assumption, the premium may never trigger. More on that below.
Compare the three on net proceeds, not on the size of the penalty alone. A big premium on a sale with a large gain can still be the right call. A small premium on a thin deal can sink it. And a penalty that falls off in a few months may be cheaper to wait out than to pay.
Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
Also remember that DSCR compares rent to the monthly payment of principal, interest, taxes, insurance and any association dues. It is not the same as positive cash flow, because repairs, vacancy, management and capex sit outside the ratio. The ratio will not tell you whether holding for a few more months pays.
Where the General Rule Breaks
The simple rule is that the loan year of the payoff sets the price. These cases bend it.
The closing date controls, not the contract date. A sale signed in loan year three but closing in loan year four may price at a different step. The reverse happens too. Confirm in the rider whether “year” counts from the note date or the first payment date, and whether the percentage applies to the outstanding balance or the original amount.
Step-downs with a floor. A schedule like 5-4-3-3-3 never reaches zero inside the term. Compared with 5-4-3-2-1, it charges the same 3% in year three, but it becomes more costly from year four on, because it holds at 3% while the other keeps stepping down. Read the whole schedule, not just the first year.
Selling one property out of a pool. This is the edge case that matters most on a portfolio note. Partial releases, substitutions and the sale of one property out of the pool follow the loan documents and the lender’s release terms. The release price runs above the property’s allocated balance. The remaining portfolio must still cover its debt service. Whether a partial release triggers yield maintenance on the released amount is a question for the documents, so ask before you list the property.
Soft versus hard. A soft penalty applies only to refinances. A hard one applies to every payoff, sale included. Which one you have is program-specific.
Partial paydowns. Some structures allow a limited annual paydown without a charge. Death, divorce and condemnation treatment vary by document.
Defeasance. This swaps collateral for a portfolio of securities, with fixed third-party costs. Per Pensford, it is typically a securitized-loan mechanism. It is rarely relevant to a DSCR note, so do not plan around it.
Assumption. On the rental portfolio term loan, a one-time purchaser assumption is available on loans above $5,000,000, subject to underwriting and an assumption fee. Below $5,000,000 it is handled on an exception basis. A buyer who assumes your loan takes over your terms, and the premium may not trigger. That only works if the buyer qualifies and wants your note.
Ways to Reduce or Avoid the Cost
You have several levers, each with its own price.
| Option | Needs | Catch |
|---|---|---|
| Wait for step or open window | Carry capacity | Market and carry risk |
| Partial paydown allowance | Rider permits it | Limited amount only |
| Buyer assumption | Rider permits it; buyer qualifies | Fee; underwriting; exception below $5M |
| Negotiated buyout | Lender agrees | Not a right; terms vary |
| Release one property | Release terms in the loan | Release price runs above allocated balance |
| Defeasance | Securitized-loan documents | Unusual on this type of note |
Before you sign any new note, price the penalty against a shorter or zero option. A longer or harsher penalty is generally traded for better pricing. If a sale is plausible in the first two or three years, that trade deserves real thought. If you are certain of a hold past year five, the penalty may never cost a dime.
Sale or Refinance: Does a New Loan Restart the Clock?
A refinance triggers the same payoff, so the old premium comes due at the new loan’s closing. A new note then carries its own prepayment terms, so yes, the clock restarts. A new loan on a seasoned property is also limited by its own leverage cap. Cash-out on a portfolio loan never goes above 75% of pooled value, and the structure’s own ceiling can bind sooner. Proceeds then have to absorb the old premium. If the numbers only work by paying the premium and resetting the clock, the sale may be the cleaner exit.
Why a Business-Purpose Note Can Carry This Penalty
DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. The CFPB’s published text of Regulation Z exempts credit extended primarily for a business or commercial purpose, and the eCFR carries the same wording. That is general context, not legal advice. The exemption depends on the loan genuinely being for investment. For state-level questions, speak with an attorney.
What a Working Broker Sees
Files with yield maintenance tend to surprise borrowers at the payoff statement, not at signing. Investors remember the headline structure and forget the benchmark date, the floor and the open window. The cleaner exits usually come from borrowers who request the payoff figure early, re-request it at contract, and treat a movement in Treasury yields as part of the sale plan. Pools add one more wrinkle. The release terms for a single property often need more reading than the prepayment clause itself.
Key Terms Defined
Yield maintenance: a prepayment premium that gives the lender the yield it would have earned through maturity.
Step-down: a prepayment charge set as a percentage of the balance, falling by loan year.
Make-whole: a harsher variant that uses the present value of all remaining payments, balloon included, minus outstanding principal.
Treasury benchmark: the government yield for the same remaining term, used to measure the gap against the note’s interest.
Balloon: the lump sum of principal still owed when a fixed term ends before the loan is fully paid down.
Payoff statement: the servicer’s written figure for the full amount due on a stated payoff date, with a good-through date.
Defeasance: replacing the loan’s collateral with a securities portfolio instead of paying a premium.
Frequently Asked Questions
How much will yield maintenance cost me on a sale?
It depends on four things: the balance, the gap between the note’s interest and the Treasury yield, the months remaining, and any floor in your rider. No honest number exists without those inputs. A written payoff statement from the servicer gives you the real figure for your payoff date.
Can I sell without paying it?
Sometimes. Selling usually triggers a payoff, so the premium generally applies unless the note carves out a bona fide sale, allows a buyer to assume the loan, or has entered its open period. Check the rider and the assumption language before you assume you owe nothing.
Does it disappear after year five?
The term ends at maturity, when the balloon comes due. On the network’s five-year portfolio note, the yield-maintenance period is 54 months, so the final stretch of the term sits outside it. Confirm the exact open window in your own rider.
What if Treasury yields rise?
The premium shrinks, because the gap between the note’s interest and the Treasury yield narrows. It can fall to the floor. A step-down works the opposite way, since it ignores yields and becomes comparatively expensive in that setting.
Can the buyer take over my loan?
Only if the documents allow it. Assumption is handled on an exception basis, so do not build a sale around it.
Next Step
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals. For the full picture of how these loans fit together, start with the complete DSCR loans guide.
About Lendmire
Lendmire (NMLS# 2371349) is a DSCR-focused mortgage broker that helps arrange investor financing across 41 markets, including Washington, D.C., through wholesale and investor-lending channels. DSCR eligibility is generally reviewed by the lender around the property’s rental income rather than personal income documentation, subject to lender guidelines — which works for self-employed investors, LLC operators, and portfolios above four financed properties. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Pensford – Defeasance vs. Yield Maintenance
2. SmartAsset – Yield Maintenance
3. CFPB – Regulation Z §1026.3
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How a DSCR Lender Sizes a 30-Year Note Versus a Rental Term Loan · How to Qualify a 2-4 Unit Luxury Rental With a 10-Year IO DSCR Loan · How Much Down Payment Does an Interest-Only DSCR Loan for First-Time Investors Need?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.