The Quick Read: The amount comes from five inputs: the balance on payoff day, the note rate, the months left in the protected period, the Treasury yield the servicer reads on that day, and any minimum the note adds. Only the servicer’s written payoff statement gives the exact figure.
- Most single-property DSCR notes use a step-down percentage of the balance, not yield maintenance. Read the prepayment rider before assuming either.
- Yield maintenance moves with Treasury yields, so the same loan can cost far more or far less on different payoff dates.
- A falling-rate market raises the charge. A rising-rate market lowers it, sometimes to the contractual floor or to zero.
- A buyer assuming the loan, or a sale after the protected period ends, can avoid the charge entirely.
- Get the calculation in writing from the servicer before the property is listed.
What Is Yield Maintenance on a Loan Payoff?
Yield maintenance is a prepayment charge that pays the lender what it would have earned if the loan ran to maturity. The premium lets the investor reach the same yield as if the borrower made every scheduled interest payment through maturity. The structure is most common in commercial mortgage lending.
A step-down penalty works differently. It is a fixed percentage of the balance at payoff, and the percentage falls each year. Interest rates do not move it. A common step-down pattern is 5-4-3-2-1, meaning 5% of the balance if the loan pays off in year one and 1% in year five.
Yield maintenance is a formula. It depends on the market on the day you pay. That is why a seller cannot estimate it from the loan amount alone.
Does a DSCR Loan Usually Carry Yield Maintenance?
Usually not on a loan secured by one rental. Across the wholesale network, most single-property DSCR notes use a step-down or flat percentage of the outstanding balance. Yield maintenance shows up more often on commercial-style structures, such as multi-property term loans with balloon maturities.
The rental portfolio term loan is the main example in Lendmire’s network. It covers five or more rental properties or units under one note. Its terms are fixed at 3, 5, 7 or 10 years with a balloon at maturity, and prepayment is yield maintenance: 54 months on the 5-year note and 114 months on the 10-year note. Lendmire’s piece How Yield Maintenance Works on a DSCR Portfolio Term Loan covers that structure in detail.
Programs and terms change, and every file is underwritten individually. The note you signed is the controlling document. Lendmire’s complete DSCR loans guide explains how these products fit together.
How Much Yield Maintenance a Seller Owes: The Calculation Step by Step
The standard explainer formula is the present value of the remaining payments multiplied by the gap between the note rate and a comparable Treasury yield. Yahoo Finance’s comparison of yield maintenance and defeasance lays out that formula and defines the benchmark as the yield on a Treasury bond matching the remaining loan term. SmartAsset’s yield maintenance explainer gives the same structure.
Work through it in this order.
1. Find the clause. The prepayment rider or the prepayment section of the note names the structure, the protected period, and what triggers the charge. Sale, refinance and full payoff are the usual triggers.
2. Confirm the structure. The options are step-down, flat, yield maintenance or make-whole, defeasance, or no penalty. They produce very different payoff costs.
3. Request the servicer’s calculation. The servicer holds inputs you cannot see, including the exact Treasury benchmark and the date it reads. Those inputs change the answer.
4. Run the inputs. Take the payoff balance, the remaining payments, the months left in the window, and the spread between the note rate and the benchmark yield.
5. Apply the floor. Some notes set a minimum charge. In some structures, yield maintenance can decline to a 1% minimum. Other formulas floor the result at zero, so the borrower is never credited. YieldStack’s glossary describes that zero-floor convention. The note decides which applies.
6. Pay from sale proceeds. The charge is collected at the title or escrow closing, out of the seller’s proceeds.
Shortcut formulas that multiply the balance by the rate spread and the years remaining circulate widely. They are rough estimates. The servicer’s present-value calculation is what appears on the payoff statement, so use shortcuts only to see whether the number is small or large.
What Drives the Number?
Five inputs set the charge. This table shows where each one lives and how it moves the result.
| Input | Where to find it | Effect on the charge |
|---|---|---|
| Payoff balance | Servicer statement | Larger balance, larger charge |
| Note rate | The note | Higher note rate, larger spread |
| Months remaining | Note and rider | More months, larger charge |
| Treasury benchmark | Servicer’s reading on payoff day | Lower yield, larger charge |
| Floor or minimum | Prepayment rider | Sets the lowest possible charge |
Two of these are fixed at origination: the note rate and the protected period. The other three move. The balance falls with every payment, the months remaining shrink, and the Treasury yield changes daily.
Worked Example: Three Rate Scenarios on the Same Loan
Take one hypothetical fixed-rate loan with a set payoff balance and a set number of months left in the protected period. Only the Treasury benchmark changes. No dollar amounts appear here because the point is the direction of the result, and the servicer supplies the real number.
| Treasury scenario | Spread vs. note rate | What happens to the charge |
|---|---|---|
| Yields have fallen since origination | Wide | Charge is largest |
| Yields roughly unchanged | Moderate | Charge is moderate |
| Yields have risen since origination | Narrow or negative | Charge falls to the floor or zero |
Janover’s glossary makes the same point: yield maintenance is expensive when rates fall and cheap when they rise. The note rate on your loan, compared with the benchmark yield today, is the swing factor.
Now look at the seller’s side. Net proceeds equal the sale price, less the payoff balance, less the prepayment charge, less closing costs. The charge is a dollar-for-dollar reduction in what the seller walks away with. A wide spread can turn a profitable sale into a thin one, and a floor-level charge barely changes the outcome. Run both versions before accepting an offer.
Getting the Real Figure Before You List
The seller or the seller’s title company requests the payoff statement from the servicer. Ask for these items in writing:
- The payoff balance and the per diem interest.
- The yield maintenance amount, with the Treasury benchmark named and the date it was read.
- The expiration date of the statement, since the figure is only good for a stated window.
- Any notice requirement in the note, such as written notice to the servicer before payoff.
- Whether the charge changes if the payoff date moves.
Ask for the calculation at two Treasury readings if the servicer will provide it. That shows how sensitive the number is. A seller who knows the range can price the property and negotiate with a buyer accordingly. The same applies when you are weighing a sale against a refinance, because both trigger the clause.
At the Closing Table
The prepayment charge shows up as a payoff line on the seller’s settlement statement, deducted from the sale proceeds along with the principal balance and accrued interest. The title company sends the servicer a single wire for the total payoff, and the lien is released when the servicer confirms receipt.
Settlement reconciliation matters here. If the closing date slips and the payoff statement expires, the servicer may recalculate the charge on a new Treasury reading. A seller who budgets from a stale figure can face a surprise at the table. Confirm that the payoff statement on the settlement draft matches the servicer’s current one before signing.
Tax treatment varies; consult a qualified professional about how the charge affects your return.
Sell Now, Wait, or Let the Buyer Assume?
The right move depends on how large the charge is compared with what waiting costs. This table frames the three paths.
| Path | When it fits | Main risk |
|---|---|---|
| Sell now and pay the charge | Charge is small or at the floor | Net proceeds shrink |
| Wait for the protected period to end | Charge is large and the hold is affordable | Carrying costs and market movement |
| Buyer assumes the loan | Note permits assumption | Few DSCR notes are assumable |
Most single-property DSCR notes do not clearly allow a buyer to assume the loan, so confirm that in the document. 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, and below $5,000,000 on an exception basis.
Break-even logic is simple. Compare the charge against the cost of waiting: carrying costs through the open window plus the risk that the market moves against you. If the charge is smaller than the expected cost of waiting, sell now. If it is larger and the property carries itself comfortably, waiting may win. Lendmire’s article Assumable DSCR Loan vs Payoff for a Seller Facing Yield Maintenance walks through the comparison for sellers.
Entity Borrowers and Portfolio Releases
Most investors hold rentals in an LLC, and the entity is the borrower on the note. The entity pays the charge from its share of sale proceeds, and the settlement statement reflects that. Entity-held loans can be arranged subject to lender program eligibility, and some structures require a special-purpose entity, typically an LLC.
Selling one property out of a portfolio loan is a separate problem. Partial releases, substitutions and single-property sales follow the loan documents and the lender’s release terms. The release price runs above the property’s allocated balance, and the remaining portfolio must still cover its own debt service. Underwriting tests the pooled coverage, so releasing a strong property can leave a weaker pool behind. Check whether the prepayment charge applies to the released balance only or to a larger amount.
Reading Your Loan Documents
Pull these clauses before you talk to a buyer or a servicer.
- Prepayment structure: step-down, flat, yield maintenance, make-whole, defeasance or none.
- Protected period: the start date, the end date, and whether an open window precedes maturity.
- Benchmark definition: which Treasury yield is used, and which date the servicer reads.
- Floor or minimum: whether a minimum charge applies, or the formula floors at zero.
- Trigger language: whether a sale, a refinance and a casualty payoff all count.
- Notice requirement: whether written notice is due before payoff.
- Assumption terms: whether the note permits assumption and on what conditions.
If the note’s definition differs from an explainer’s formula, the note governs. Pensford notes that make-whole is often used interchangeably with yield maintenance but is derived from the present value of all future payments, including the balloon, less the outstanding principal, so the two can produce different numbers.
Yield Maintenance Compared With Other Prepayment Structures
| Structure | How the charge is set | Predictable on day one? |
|---|---|---|
| Step-down | Percentage of balance, falls yearly | Yes |
| Flat | Fixed percentage of balance | Yes |
| Yield maintenance | Rate spread on remaining payments | No |
| Defeasance | Collateral swap instead of cash | Partly |
Defeasance is a different process altogether. On CMBS-style loans the borrower substitutes securities as collateral rather than paying a cash penalty, per Pensford. It is not the same as paying a yield maintenance charge.
An investor planning a short hold or a possible sale should favor a softer structure, such as a shorter step-down or a note with no prepayment charge. Notes without a penalty usually carry different pricing. A long hold can justify a longer step-down. Match the structure to the plan before signing, and ask for a worked example at two Treasury scenarios if the note uses yield maintenance.
Key Terms Defined
Yield maintenance: a prepayment charge that compensates the lender for interest lost when a loan is paid off early.
Step-down penalty: a prepayment charge set as a percentage of the balance that falls each year of the loan.
Make-whole: a prepayment formula that discounts all remaining payments, including the balloon, and subtracts the principal balance.
Defeasance: a payoff method where the borrower swaps securities in for the loan’s collateral instead of paying cash.
Treasury benchmark: the yield on a government bond matching the remaining loan term, used as the discount rate.
Settlement reconciliation: the final check that the payoff figure on the closing statement matches the servicer’s current statement.
Frequently Asked Questions
Can the charge be zero?
Sometimes. If Treasury yields have risen above the note rate, many formulas floor the result at zero, per YieldStack. Other notes set a minimum, so the answer depends on the floor language in your rider.
Is yield maintenance the same as a prepayment penalty?
It is one kind of prepayment penalty. A step-down penalty is a percentage of the balance, while yield maintenance depends on rates and time remaining. Both are prepayment charges, but they behave differently as the market moves.
Can the charge be negotiated?
Before closing on the loan, yes. Investors can choose a shorter protected period, a step-down structure or a no-penalty option, often with different pricing. After origination, the note controls, and a servicer rarely changes the formula.
Does the charge apply if a buyer assumes the loan?
Usually not. A permitted assumption keeps the loan in place, so no payoff happens. Most single-property DSCR notes are not clearly assumable, so confirm in the note.
Does a larger down payment on my next purchase change what I owe on this payoff?
No. The charge on the loan you are paying off depends on that loan’s terms. A larger down payment on a new purchase can lift the coverage ratio, but it never overrides leverage caps, credit floors or reserve rules.
How far ahead should I request a payoff quote?
Before you list the property. The figure expires, and a quote in hand lets you price the sale and negotiate with the buyer from known numbers.
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. Lendmire is a broker arranging financing through select lenders in its wholesale network, across 41 markets including Washington, D.C. Program terms are subject to lender guidelines and are not a commitment to lend.
About Lendmire
Lendmire is a non-QM mortgage brokerage (NMLS# 2371349) arranging DSCR investor loans in 41 markets, including Washington, D.C., through wholesale and investor-lending channels. DSCR loans are evaluated by the lender on rental income rather than personal income, subject to lender guidelines — a fit for LLC-owned portfolios, self-employed investors, and operators scaling beyond conventional loan caps. Recognized as a Scotsman Guide Top Mortgage Workplace in 2025 and 2026.
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References
1. Yahoo Finance, Differences: Yield Maintenance vs. Defeasance
2. SmartAsset, Yield Maintenance
5. Pensford, Defeasance vs. Yield Maintenance
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How Much an Interest-Only DSCR Loan Lends a Scaling W-2 Investor · How Much Your DSCR Loan Terms Can Change When the Lender Sells · How Much a DSCR Loan Lends on a Master-Leased Rental
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.