Yield Maintenance
Yield maintenance is a prepayment penalty calculated as the present value of the interest a lender would lose from early repayment, discounted at a reinvestment rate such as a comparable Treasury yield. It's designed to make the lender economically indifferent to prepayment — and because it scales with how far rates have fallen since origination, it can become extremely expensive to trigger.
The lower the reinvestment rate falls relative to the loan's rate, the larger the penalty: a loan originated at 6% being prepaid when comparable Treasuries yield 3% can carry a yield maintenance charge worth a significant fraction of the outstanding balance, compensating the lender for the full remaining spread.
Yield maintenance is standard on CMBS, life company, and agency loans, typically applying for most of the term before opening to a shorter open-prepayment window near maturity. Borrowers expecting to sell or refinance early should model the penalty under multiple rate scenarios, not just at closing.
On a $10 million loan with several years of term remaining, a large drop in rates can push the yield maintenance penalty into the high six figures.