The Quick Read: Usually not once the note is signed. On the rental portfolio term loan with a ten-year fixed term, yield maintenance is the prepayment structure itself, and it runs for 114 months of the 120-month term, so your real choices come before signing. Those choices are the structure, the hold period, and assumption language, all subject to lender guidelines.
- The ten-year term does not mean ten full years of penalty. The program window is 114 months on the ten-year note.
- Yield maintenance is a formula, not a flat percentage. It tends to cost more when Treasury yields have fallen since you signed.
- Avoiding it means picking a different structure, holding past the window, or having a buyer assume the loan.
- Single-property 30-year DSCR notes commonly use step-down or flat penalties instead.
- Read the prepayment rider before you sign, because the formula cannot be renegotiated afterward.
What Is Yield Maintenance, in Plain English?
Yield maintenance is a payoff charge that keeps the lender whole when you repay early. The lender priced the loan expecting to collect interest until maturity. If you pay off early, the premium makes up the difference.
Adventures in CRE describes the calculation as the present value of the remaining cash flows, discounted at an agreed benchmark such as a government bond yield, minus the outstanding balance. In plain words, the lender asks what your remaining payments are worth today and compares that to the balance you owe.
The key point is that the charge moves with the market. You cannot know the number on the day you sign.
A step-down penalty works differently. It is a percentage of the balance that shrinks on a set schedule, so you can read the cost off a table. A flat penalty is one percentage for the whole window. Yield maintenance has no table, only a formula.
Does a Ten-Year Term Mean a Ten-Year Penalty?
No. The penalty window and the loan term are two separate terms in the note. On the rental portfolio term loan in our wholesale network, the ten-year note carries yield maintenance for 114 months. That is a little under the full 120 months, and the five-year version carries 54 months.
This matters because many investors assume they are locked for the whole decade. The window ends before maturity, but not by much. A sale or refinance in years one through nine is exposed. Only the stretch near maturity is open.
It also helps to know where this structure lives. In our network, the ten-year fixed term sits on the rental portfolio term loan, which covers five or more rental properties or units under one loan. Loan sizes run from $500,000 to $50,000,000, with larger balances on review, and leverage goes up to 75% of value. The loan carries a balloon at maturity. Recourse and non-recourse versions exist, and a non-recourse loan looks to the real estate with carve-outs such as fraud and bankruptcy. All of this is subject to lender guidelines and underwriting.
How Does the Formula Work on a Ten-Year Note?
The formula follows five steps. Most borrowers never run it, but knowing the steps tells you what to ask for in the note.
1. List the remaining payments. That means every scheduled principal and interest payment from the payoff date to maturity, plus the balloon.
2. Pick the benchmark. The note names a comparable Treasury yield, and the definition matters. Check whether it matches the remaining term.
3. Discount the payments. The lender discounts those payments at the benchmark yield to find their value today.
4. Subtract the balance. The difference between that value and your outstanding balance is the premium.
5. Check for a floor. Some notes add a minimum charge. Look for that language.
Pensford frames the premium as the present value of the gap between your note’s payments and what comparable Treasuries would pay over the remaining term. It also says the payment is made at the closing of the sale or refinance.
A long remaining term amplifies the swing. Early in a ten-year note, many payments sit in the future, so a small move in Treasury yields changes the present value a lot. Near maturity, few payments remain, and the formula has less room to move.
Pensford also warns about a make-whole clause, which people often confuse with yield maintenance. It is derived from the present value of all future payments, including the balloon, minus the outstanding balance. The two can look alike in the note, so ask which one you are signing.
When Does It Cost a Lot and When Almost Nothing?
It costs the most when yields have fallen below what your note pays, and it shrinks when yields have risen. That is the direction asymmetry. Here is a labeled, qualitative illustration for a ten-year note, with no figures attached.
| Market since signing | Formula result | Plain meaning |
|---|---|---|
| Treasury yields fell | Large premium | Lender loses the most by being repaid |
| Yields about the same | Modest premium | Small gap to make up |
| Treasury yields rose | Small or minimal | Lender can relend at higher yields |
The catch is the timing. Falling yields are the very moment you would want to refinance. So the scenario that tempts you to prepay is also the one where the charge runs highest.
That does not make yield maintenance worse in every case. When yields have risen, it can cost less than a step-down would at the same point. No structure wins in every market. The honest framing is that you trade a known cost for a market-linked one.
Can You Avoid It? The Ranked Options
Avoiding it is mostly a before-signing exercise. After closing, the formula is part of the loan documents. Here are the levers, ordered roughly from strongest to weakest.
| Lever | When it applies | The catch |
|---|---|---|
| Choose a different structure | Before signing | Changes leverage, term, and eligibility |
| Negotiate the terms | Before signing | Depends on the lender and file |
| Hold past the window | Near maturity | Window runs 114 months on the ten-year note |
| Buyer assumes the loan | At sale | Needs lender approval and a fee |
| Partial release language | Selling one property | Release price runs above allocated balance |
| Wait out the market | Any time | You cannot control Treasury yields |
Choose a different structure. This is the cleanest route. A 30-year portfolio DSCR loan covers 2 to 20 properties under one note, with leverage up to 80% of value on a purchase or rate-and-term refinance. That is a different product from the ten-year term loan, and its prepayment terms come from the lender’s quote, so read them before you commit. A single-property 30-year DSCR note commonly uses a step-down or flat penalty instead, and some lenders will price a note with no penalty, usually at a cost elsewhere in the pricing. Which one you can get depends on the file, the lender, and the property count.
Negotiate before signing. Borrowers can ask for step-downs, earlier open periods, or a reduced formula before they sign, according to the commercial-finance marketplace Janover. After signing, the terms are fixed. Through our wholesale network, we see this vary by lender, so ask for the prepayment terms in writing at the quote stage, not at payoff.
Hold past the window. On the ten-year note, only the final stretch before maturity falls outside the 114 months. That is a plan for a long hold, not a way to exit early.
Assumption. On loans above $5,000,000, the program allows a one-time purchaser assumption, subject to underwriting and an assumption fee. Below $5,000,000, assumption is on an exception basis. If a buyer assumes the loan, the note stays alive, so there may be no payoff and no premium. The lender decides, and the buyer must qualify.
Partial release. Selling one property out of the pool follows the loan documents and the lender’s release terms. The release price runs above the property’s allocated balance, and the remaining pool must still cover its debt service. Whether a partial release triggers a premium depends on the note, so ask that exact question.
Yield Maintenance vs. Defeasance vs. Step-Down
These three get confused, but they work differently.
| Feature | Yield maintenance | Defeasance | Step-down |
|---|---|---|---|
| What happens | Lump-sum payoff, loan ends | Collateral swapped, loan stays | Percentage of balance |
| Cost known upfront? | No, market-linked | No | Yes, from schedule |
| Common on | Term loans, larger notes | Securitized loans | Many 30-year DSCR notes |
Pensford draws the key distinction: yield maintenance is a payoff that ends the loan, while defeasance is a collateral substitution that keeps the loan alive. Defeasance is mostly a securitized-loan tool. We do not treat it as a lever on these notes, so do not plan an exit around it unless the note says it is allowed.
What Triggers It and What Doesn’t?
The note defines the trigger, so read it. These are the common ones.
- A sale of the whole portfolio before the window ends.
- A refinance into a new loan. The new note then starts its own prepayment clock.
- A full payoff from cash or other funds.
- A lump-sum paydown above a threshold, if the note sets one.
Ordinary scheduled payments never trigger it. Some structures also penalize only the amount above a threshold, so a small extra payment may be fine. Others do not. Check whether the charge applies to partial payoffs at all.
A refinance deserves extra thought. It does not erase the cost, because you pay the premium on the old note and then take on a fresh prepayment term on the new one. If you plan to refinance to pull out equity in a few years, price that in now. The cash-out ceiling on a portfolio loan is 75% of pooled value, and it also depends on seasoning, so a sale or refinance is not free just because equity has grown.
Which Exit Plan Fits Which Structure?
Match the structure to the hold you actually expect, not the hold you hope for.
| Your likely plan | Better fit | Why |
|---|---|---|
| Long hold to maturity | Ten-year term loan | Window rarely matters if you hold |
| Possible sale in years 2-4 | Step-down or flat penalty | Cost is predictable |
| Likely refinance | Shorter or no-penalty structure | Avoids market-linked exposure |
| Selling properties one by one | Check release terms | Pool rules apply |
A long-hold investor can reasonably accept yield maintenance for the structure’s other benefits, such as fixed-rate certainty and multi-market pooling. An investor who expects to sell soon should not.
Also remember what a coverage number tells you. DSCR compares rent to the full monthly obligation of principal, interest, taxes, insurance, and any HOA dues. Clearing 1.00 does not mean positive cash flow, because repairs, vacancy, management, and capital expenses sit outside the calculation. Exit cost is one more item that sits outside it. Tax treatment varies, so consult a qualified professional before relying on any deduction.
Does Federal Law Cap the Penalty?
Not on a rental property loan. 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 exam procedures for the Truth in Lending Act say business-purpose credit is exempt, and that credit to buy or improve non-owner-occupied rental property counts as business purpose. The prepayment limits in the consumer dwelling-secured section of the Federal Reserve’s Regulation Z commentary are aimed at consumer mortgages. So do not assume a federal cap protects you. State rules vary, so confirm what applies to your loan.
What Should You Check Before You Sign?
- Which structure applies: yield maintenance, make-whole, step-down, flat, or none.
- How the benchmark yield is defined and whether it matches the remaining term.
- Whether a minimum premium applies.
- When the open period starts, and whether it is counted from signing or from first payment.
- Whether the premium is charged on the current balance or the original amount.
- Whether partial payoffs, sales of one property, and substitutions trigger it.
- What assumption terms exist, and what the assumption fee covers.
- What a no-penalty or shorter-penalty quote looks like, in writing.
Before any payoff, ask the lender for a payoff figure instead of estimating. The formula depends on the day, so an estimate made a year earlier can miss badly.
Key Terms Defined
Yield maintenance: A prepayment premium that compensates the lender for interest it will not collect if you repay early.
Step-down penalty: A prepayment charge, set as a percentage of the balance, that shrinks on a fixed schedule.
Defeasance: A process where you replace the loan’s collateral with securities, so the loan continues rather than being paid off.
Make-whole clause: A payoff formula based on the present value of all future payments, including the balloon, minus the balance.
Balloon: The large remaining balance due at the end of a term loan.
Assumption: A transfer of the existing loan to a buyer, subject to lender approval.
Non-recourse: A loan that looks to the real estate for repayment, with recourse limited to carve-outs such as fraud and bankruptcy.
Frequently Asked Questions
Is yield maintenance negotiable after closing?
No. The formula sits in the note and rider, and it is only negotiable before you sign. After closing, your levers are timing, assumption, and release terms in the documents.
Can a buyer assume a ten-year note?
Sometimes. On loans above $5,000,000, the program allows a one-time purchaser assumption subject to underwriting and an assumption fee. Below $5,000,000, it is on an exception basis. The buyer must qualify.
Is there a minimum premium?
Some notes include one, and some do not. Check the rider for a floor, because it can mean a charge even when yields have risen.
Is yield maintenance the same as defeasance?
No. Yield maintenance is a payoff that ends the loan, while defeasance replaces the collateral and keeps the loan in place.
Does it apply if I sell only one property?
It depends on the note. Partial releases follow the loan documents and the lender’s release terms, and the release price runs above the property’s allocated balance. Ask whether a release triggers a premium.
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 that arranges financing through select lenders in its wholesale network across 41 markets, including Washington, D.C. For the full picture of how these loans work, read the complete DSCR loans guide. Qualification is subject to lender guidelines. This is not a commitment to lend.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage focused on investor financing, arranging DSCR loans in 40 states plus Washington, D.C. — 41 markets total. Qualification is based on the property’s income rather than personal income documentation, subject to lender guidelines, making it a fit for LLC-held rentals and scaling portfolios. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Adventures in CRE: Yield Maintenance
2. Pensford: Defeasance vs Yield Maintenance
3. Janover yield maintenance calculator
5. Federal Reserve Regulation Z commentary
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can a Maturing Portfolio Loan Be Refinanced Into a 30-Year DSCR Loan? · One Multi-State DSCR Loan vs. a Loan in Each State · Can You Get a DSCR Loan for an Airbnb in Illinois?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.