Prepayment penalty calculator
A prepayment premium is what the loan documents charge to repay before the open period. On an illustrative $5,000,000 loan at 6.00% with five years left and Treasuries at 4.00%, Fannie Mae-style yield maintenance comes to about $445,182, Freddie Mac's monthly version about $452,492, and a 5-4-3-2-1 step-down in year 3 about $150,000. Pick the method in your note below; Treasury yields preload from today's readings.
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Estimated premium
$445,182
–
Estimate only. Your servicer's payoff statement is the binding figure.
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The methods, side by side
| Method | How it is computed | Where you see it |
|---|---|---|
| Fannie Mae yield maintenance | YM = principal prepaid x (note rate minus Treasury yield) x [1 - (1 + r)^(-n/12)] / r, with r the Treasury yield and n the months left1. Fannie Mae loan documents generally set the premium before the Yield Maintenance Period End Date at the greater of 1% of the balance or yield maintenance2. | Fannie Mae fixed-rate loans with the yield maintenance option |
| Freddie Mac yield maintenance | Freddie Mac YM = greater of 1% or principal x (monthly note rate minus monthly Treasury rate) x a monthly present value factor3. The discount rate is 1/12 of the Treasury CMT yield matching the remaining YM period, taken 5 business days before prepayment3. | Freddie Mac fixed-rate notes |
| CMBS yield maintenance | CMBS-style YM discounts every remaining payment at the Treasury yield (no spread) and charges the excess over the balance, with a 1% minimum4. | Conduit loans that allow yield maintenance |
| Defeasance | Defeasance collateral must be non-callable government securities4; An independent CPA must certify the securities cover every scheduled payment. The borrower pays rating agency fees and the other expenses of defeasance4. | Most CMBS loans; Freddie Mac Conventional Small after securitization |
| Step-down | 5-year: 5-4-3-2-1 (percent by loan year), no lockout5; 10-year: 5-5-4-4-3-3-2-2-1-1, no lockout. | Agency declining-premium options, banks, credit unions, bridge lenders |
| SBA 504 | 504 premium = remaining debenture balance x debenture rate x the year's factor6. Factor P by year: 1.00, 0.90, 0.80, 0.70, 0.60, 0.50, 0.40, 0.30, 0.20, 0.10, then 0 from year 11 (20 and 25-year debentures). | The CDC debenture portion of a 504 loan |
| SBA 7(a) | Applies to 7(a) loans of 15 years or more when voluntary prepayments exceed 25% of the highest balance in any of the first three 12-month periods7. 5% of prepayments in the first 12 months after first disbursement, 3% in the second, 1% in the third7. | 7(a) loans of 15 years or more |
Worked example: one loan, three formulas
Illustration, not a payoff quote: $5,000,000 prepaid, note rate 6.00%, 60 months to the end date, Treasury at 4.00%.
- Fannie Mae style: present value factor 4.451822, so $5,000,000 x 2.00% x 4.4518 = $445,182.23.
- Freddie Mac style: monthly rates and monthly discounting give $452,492.24, a bit more than Fannie's annual discounting on the same inputs: Freddie Mac discounts the rate differential monthly (Fannie Mae's Form 6104.01 discounts annually)3.
- CMBS style, interest only: the present value of all 60 remaining payments and the balloon at 4.00% is $5,452,492.24, so the premium is $452,492.24 (9.05% of the balance). Discounting the full payments, not just the rate difference, makes it the largest of the three.
- If Treasuries were 6.50% instead, above the note rate, the Fannie formula would compute to zero and the minimum would apply: $50,000.
Timing rules that change the answer
- Defeasance lockout. CMBS loans can defease only after at least 2 years from the securitization closing, not the loan closing4. The tax rule behind it: No defeasance release within 2 years of the REMIC startup day8.
- Freddie Mac window. No premium in the final 3 calendar months before scheduled maturity3.
- Fannie Mae after yield maintenance ends. Usually 1% of the balance, on a full prepayment between the Yield Maintenance Period End Date and the open period2. Typically no premium on a full prepayment from the last calendar day of the fourth month before the maturity month2.
- Freddie Mac Conventional Small. Yield maintenance until securitization, then a 2-year lockout, then defeasance; open for the final 90 days9. Step-down and yield maintenance without defeasance are available on Conventional Small for an added cost9.
- Casualty and condemnation. On Fannie Mae SARM and Hybrid ARM loans, no prepayment premium is due when a prepayment results from casualty or condemnation10.
Edge cases
- Treasury above the note rate. Yield maintenance falls to its minimum. Defeasance can then cost less than the balance (the securities are cheap), but you still pay the fees.
- Partial prepayments. Most formulas apply to the amount prepaid; some notes allow none. SBA 7(a) counts only voluntary prepayments above its threshold.
- Remaining terms under five years. The calculator's live Treasury fill holds the 5-year yield flat below five years, because the site carries 5-, 7- and 10-year readings. Type your note's yield if it names a shorter maturity.
- Freddie Mac's zero-rate rule. Freddie Mac's reinvestment rate may be negative; at exactly zero the premium is averaged at +0.01% and -0.01%3. The calculator applies it.
Method and formulas
Fannie Mae: premium = max(floor x P, P x (note - y) x [1 - (1 + y)^(-n/12)] / y) Freddie Mac: premium = max(floor x P, P x (note/12 - y/12) x [1 - (1 + y/12)^-n] / (y/12)) CMBS: premium = max(floor x P, PV at y/12 of every remaining payment and the balance at the open date - P) defeasance cost = PV at y/12 of every remaining payment and the balloon - balance + fees step-down = P x schedule[loan year]; SBA 504 = balance x debenture rate x factor[year] SBA 7(a) = prepaid x tier[period] when maturity is long enough and prepayments exceed the threshold
Today's Treasury fill: the 5-, 7- and 10-year readings (4.94% on October 30, 2026 for the 10-year at build), linearly interpolated to the months left, the same interpolation Fannie Mae's form describes: Fannie Mae discounts at the interpolated Treasury constant maturity yield from Fed H.15, with no added spread1.
Questions people ask
What is the difference between yield maintenance and defeasance?
Yield maintenance is a cash fee that pays the lender the interest it loses when you repay early, discounted at Treasury yields. Defeasance does not repay the loan at all: you buy government securities that make every remaining payment, and the loan stays in place secured by them. Both cost more when Treasury yields are low relative to your note rate.
Why is my yield maintenance only 1%?
Because Treasury yields are above your note rate, so the lender can reinvest at a higher rate and loses nothing. The formula then goes to zero and the minimum premium in the documents (commonly 1% of the amount prepaid) applies.
Can I avoid a prepayment penalty?
Wait for the open period near maturity, sell to a buyer who assumes the loan, refinance with a supplemental loan instead of paying off, or negotiate a step-down or open prepayment when you take the loan. Casualty and condemnation prepayments are often exempt.
Is this calculator exact?
No. Real calculations use the exact Treasury reading set by the note (often several business days before prepayment), the exact remaining payment dates and, for defeasance, the price of a specific bond portfolio plus fees. Use this to size the cost, then ask the servicer for a payoff quote.
Related tools and guides
Sources
- Fannie Mae Form 6001.MCFA schedules and Form 6104.01 (05-20) Standard Yield Maintenance schedule, as filed with the SEC (New England Realty Associates 8-K, Ex. 10.1), as of June 16, 2022
- Fannie Mae Multifamily Selling and Servicing Guide, Part V, Section 213 Prepayment Premium Sharing, as of October 26, 2026
- Freddie Mac Multifamily Note, Fixed Rate Yield Maintenance Only (Revised 5-5-2017), as filed with the SEC (Inland Residential Properties Trust, Ex. 10.41), as of July 27, 2017
- BANK5 2026-5YR24 prospectus (Form 424B2), SEC EDGAR, as of August 20, 2026
- Fannie Mae Multifamily, Declining Prepayment Premium Term Sheet, as of November 1, 2026
- SBA Form 1504 (6-18), Development Company 504 Debenture, as of June 2018
- 13 CFR 120.223, Subsidy recoupment fee, eCFR, as of October 29, 2026
- 26 CFR 1.860G-2(a)(8), REMIC qualified mortgage defeasance rule, eCFR, as of October 29, 2026
- Freddie Mac Multifamily, Optigo Conventional Small product sheet (4/26), as of April 2026
- Fannie Mae Multifamily Selling and Servicing Guide, Part III, Section 1104 Prepayment Terms (SARM), as of October 26, 2026
- U.S. Department of the Treasury, daily par yield curve rates, as of October 30, 2026
How we check figures: methodology and editorial policy.
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