The Quick Read: A step-down schedule charges a set percentage of your balance that shrinks each loan year, while yield maintenance charges an amount that moves with market yields on payoff day. For an early sale, the step-down is easier to plan around, and it is the more common shape on single-rental DSCR loans.
- Both are written into the note and a prepayment rider at closing. You cannot choose one when you decide to sell.
- A step-down gives you a number you can estimate on day one. Yield maintenance stays unknown until the payoff date.
- A sale is a full payoff, so it normally triggers either charge. Some riders carve out genuine sales, so read yours.
- Neither structure changes how coverage is calculated. The charge is an exit cost, not a monthly payment item.
- The loan year in which you sell matters for a step-down. The market yield on payoff day matters for yield maintenance.
Here is the honest answer on who each is for. A step-down fits the investor who might sell in a few years and wants a fixed line in the sale math. It suits flips, BRRRR refinances (buy, rehab, rent, refinance, repeat) and any plan where the exit date is a guess. Yield maintenance fits the investor with a firm, long hold who accepts an unknown exit cost. It also shows up on larger, longer-term debt.
A step-down is a percentage of your unpaid balance that falls on a fixed schedule. Yield maintenance, per Adventures in CRE, is a prepayment method meant to leave the borrower neither better nor worse off from rate moves and the lender unharmed by them. It is generally the present value of the lender’s remaining payments, discounted at an agreed benchmark such as a government bond yield, less the balance being repaid.
Side-by-Side
| Factor | Step-Down | Yield Maintenance |
|---|---|---|
| How the charge is set | % of balance by loan year | Value of remaining payments vs. benchmark |
| Known at closing? | Yes, can be estimated | No, set on payoff date |
| Common on single-rental DSCR | Yes, the usual shape | Less common |
| Review basis | Rent vs. PITIA | Rent vs. PITIA |
| Documentation | Same file, plus rider terms | Same file, rider defines formula |
| Property types | SFR, 2-4 unit, condo, townhome | Same, plus small multifamily on portfolio term loan |
| Entity vesting | LLC possible, program-dependent | LLC possible, program-dependent |
| Reserves | Commonly about 6 months PITIA | Same; portfolio loan holds tax, insurance, capex reserves |
| Timeline | Declines over several loan years | Runs a stated period (54 or 114 months on network portfolio notes) |
The step-down column shows published industry norms. The yield maintenance column shows industry norms plus the network’s rental portfolio term loan, a single note covering five or more rentals or units. Lendmire’s wholesale network places both structures.
Two notes on the table. PITIA means principal, interest, taxes, insurance and any association dues, the monthly obligation that rent is compared against. And manufactured homes, log homes and barndominiums are not offered in the network’s DSCR programs under either structure.
How Each Charge Gets Calculated
The step-down math is one multiplication. Take the percentage for the loan year you pay off, then apply it to the unpaid balance at payoff. Market conditions do not enter, so you can price it at closing. The best-known shape is often called 5-4-3-2-1, where the percentage falls one step each year. Variations exist: a flat charge for a set period, a charge equal to some months of interest, or a short schedule of one to three years. The rider spells out which one you have.
Yield maintenance takes more steps:
1. List the payments the lender would have received from the payoff date to the end of the protected period.
2. Discount those payments at the benchmark yield named in the rider.
3. Subtract the balance you are repaying.
4. Apply any floor the rider sets, so the charge never drops below a stated minimum.
When market yields have fallen well below what your loan pays, the charge can be large. When yields have risen above it, the charge may shrink to the contractual floor. Textbook formulas are simplified, and actual rider language varies, so check the rider’s own definition before relying on any shortcut.
A third structure sometimes gets confused with yield maintenance. Defeasance means you replace the loan’s collateral with securities instead of repaying the loan. It belongs to conduit-style commercial debt and rarely appears on a DSCR note.
When Step-Down Is the Better Fit
A step-down is the better fit whenever your exit date is uncertain or likely to come early. Picture an investor who buys a duplex planning to renovate, stabilize and sell around year three. The step-down tells that investor on day one roughly what a year-three sale will cost, and the sale-price floor can be built around it.
Several things work in a step-down’s favor:
- It goes in the pro forma. You can put the charge for each loan year into your sale model before you ever list the property.
- Time lowers the cost. Waiting for the next step down is a decision you can price. If your sale date sits just before a step, a short delay may lower the charge, and a payoff quote shows the difference.
- Variants soften it. Shorter schedules and open windows at the end of the term reduce exposure. Some riders also allow partial paydowns without triggering the charge.
- It fits stacked plans. An investor who expects to sell one rental to fund the next usually wants the cost known, not floating.
The tradeoff is that a step-down ignores the market. If yields have risen since closing, a fixed percentage may cost more than yield maintenance would have, because yield maintenance can fall to its floor in that case. A step-down also never rewards you for being lucky on rates.
For more on how stepped terms work for a different kind of borrower, see Lendmire’s piece Flat vs Step-Down DSCR Terms for an Asset-Based Retiree.
When Yield Maintenance Is the Better Fit
Yield maintenance is the better fit when you are sure about a long hold and the loan structure offers something in return. Within the network, that mostly means the rental portfolio term loan. It covers five or more rental properties or units under one note, with loan sizes from $500,000 to $50,000,000 (larger on review) and leverage up to 75% of value. Terms run 3, 5, 7 or 10 years with a balloon at maturity. Prepayment is yield maintenance, with 54 months on the 5-year note and 114 months on the 10-year note. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Those figures are program ceilings and floors, not quotes, and every file is underwritten individually. Non-recourse structures exist on the term loan, which means the lender looks to the real estate, with recourse limited to carve-outs such as fraud and bankruptcy. A recourse loan carries a personal guarantee.
There are two honest reasons an investor might prefer yield maintenance:
- Rising yields can help. If market yields climb above what the loan pays, the charge may drop to its floor. The investor then pays less than a step-down would have cost in the same year.
- The structure comes with the product. If a portfolio term loan is the right fit for a larger holding, yield maintenance is part of it.
The risk deserves plain language, though. Yield maintenance is a variable. A borrower who needs to sell early, after yields have dropped, can face a charge too large to plan around. Long protected periods compound that problem. They can leave a borrower stuck holding a property they would otherwise sell or refinance.
One option on larger notes is assumption, where a buyer takes over the loan instead of you paying it off. On the 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. Treat assumption as a question to ask, not a promise.
What Neither Structure Changes
The choice between these structures does not alter how a DSCR loan qualifies. A DSCR loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. For single-property loans, most files land at 75% to 80% LTV on a purchase. Credit expectations commonly run around 660, with a 620 floor in parts of the network. Reserves are commonly around 6 months of PITIA, stepping up to about 9 months above $1,500,000. Holding title in an LLC is available subject to lender program eligibility, and the penalty follows the note and the borrower either way.
Clearing 1.00 coverage, where select programs start, is also not the same as positive cash flow. The ratio compares rent to PITIA only. Repairs, vacancy, management, utilities and capital expenses sit outside it. A prepayment charge sits outside it too, which is why it belongs in your sale math and not in your coverage math.
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 Regulation Z text excludes credit extended primarily for a business purpose and requires a case-by-case look at the purpose. A Federal Reserve Reg Z guide treats credit to acquire or improve non-owner-occupied rental property as business-purpose credit. In practice, the consumer-mortgage limits on prepayment penalties do not control a DSCR note. The note and rider do. State law can still limit prepayment charges on some business-purpose loans, so confirm yours.
Net Proceeds and Timing the Sale
A prepayment charge comes out of your sale proceeds at the closing table. The sale is a full payoff, so the servicer issues a payoff statement showing principal plus the charge, ordered through the title company or escrow. Request that quote before you set your sale-price floor, not after you accept an offer.
Three timing points matter:
- Step dates. Ask exactly which date moves you into the next loan year. A closing date one side or the other of that line can change the percentage.
- Quote expiration. Payoff quotes carry an expiration. A yield maintenance quote is tied to a payoff date, so if the closing moves, the figure can move with it.
- Net proceeds. Subtract the charge from your equity before you decide whether an early sale beats holding.
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.
Which One Is in Your Note?
Find the prepayment rider and look for these items:
- The structure’s name and how the charge is figured.
- Whether it applies to a sale, a refinance, or both.
- Any floor, any open window at the end, and any carve-out for a genuine sale.
- Whether partial paydowns are allowed without triggering it.
- How vesting, whether personal name or entity, affects who owes it.
If you are still shopping, ask the broker to show you the riders from each program under consideration. Different lenders in the network use different structures, which is the advantage of comparing several.
Yield Maintenance vs Step-Down Schedule: The Verdict
If your exit date could move, choose the step-down. It trades possible savings for knowledge, and for a flip, a BRRRR refinance or a planned sale inside a few years, knowledge is worth more. It also lets you model the sale before you buy.
If your hold is long and certain, and the product you want comes with yield maintenance, the structure is workable. You are accepting an unknown exit cost, and you should size the worst case before signing.
Neither is a mistake by itself. The mistake is not reading the rider. For the wider picture of how leverage, coverage and terms fit together, see Lendmire’s complete DSCR loans guide.
Frequently Asked Questions
Does a partial paydown trigger the charge?
It depends on the rider. Some programs allow partial paydowns without a charge, and others apply it to any principal repaid in the protected period. Ask the lender to show the paydown language in writing before closing.
Can I choose between the two when I sell?
No. The structure is fixed in the note when the loan closes. At sale you only choose the date and whether to pay off, refinance, or pursue an assumption if the loan allows one.
Does the prepayment charge affect my DSCR?
No. The ratio compares rent to PITIA, and the charge is a one-time exit cost. It does matter for your net proceeds, so it belongs in the sale math.
Can a step-down cost more than yield maintenance?
Yes, in some conditions. When market yields have risen above what your loan pays, yield maintenance can fall to its contractual floor. A fixed percentage of the balance would cost more in the same year.
Do states limit prepayment charges on investor loans?
Some states restrict prepayment charges on certain business-purpose loans. The rules differ and depend on the loan and the property, so check the rules that apply to yours before relying on any assumption.
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. Reach the team at 828-256-2183 or request a quote.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage built around DSCR investor lending, with programs available in 41 markets, including Washington, D.C. DSCR lenders commonly evaluate rental-income coverage instead of personal income paperwork — a practical fit for LLC-owned and multi-property investors. Terms vary by lender, property, leverage, and program. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Adventures in CRE – Yield Maintenance
3. Federal Reserve Reg Z guide
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Get a DSCR Loan for an Airbnb in Washington, DC? · Can You Buy an Airbnb With Less Than 20% Down on a DSCR Loan? · Can You Get a DSCR Loan for an Airbnb in Tennessee?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.