How Yield Maintenance Prepayment Penalties Benefit REIT Investors

As you begin investing, you start to learn about little nuances and details about the practice. These little investing secrets are details that you had never even heard mention of before you became an investor. That leaves you needing to do your homework to learn about these investing topics. Yield maintenance is probably one of those things you had never heard of until you got confronted with it as an investor. Find out what a yield maintenance prepayment penalty is and learn all about how it affects investors like you below.

What Is A Yield Maintenance Penalty?

Yield maintenance penalties help investors make the expected yield from scheduled mortgage payments, even when borrowers pay their mortgage off early. These penalties are a type of prepayment premium. This is the final expense for homeowners when they pay a mortgage off early.  Without them, investors like you would lose out whenever someone paid of their mortgage early. If you are an investor, yield maintenance prepayment penalties are one of the only penalties you should welcome with open arms.

What Investments Are Affected?

Yield maintenance usually impacts commercial real estate investments. This is particularly prominent in cases of substantial loan amounts that are sold off in secondary markets. If you are a real estate investor, you will almost certainly encounter a yield maintenance prepayment penalty at some point. Otherwise, you may be able to continue investing without ever hearing this term again. If you plan on investing in commercial real estate, you should certainly familiarize yourself with these yield maintenance fees.

Why Is It Important?

Yield maintenance is important because it helps you earn the money you expect to earn, regardless of outside variables. This helps to quell investor concerns about these types of real estate investments. You do not have to care about mortgage prepayment if it does not impact your bottom line. That makes commercial real estate investment opportunities an easier sell, which is best for all involved. If you like commercial real estate investments, you will love yield maintenance prepayment penalties.

Yield Maintenance Formula

The yield maintenance formula can be used to calculate a borrower’s yield maintenance premium.Thankfully, you do not have to attend a day trading academy to learn how to calculate yield maintenance prepayment fees. Yield maintenance premiums are equal to remaining mortgage payments’ present value multiplied by the mortgage interest rate minus the treasury bond rate. That number is the one that the banks will use for investment purposes. As an investor, it is unlikely you will need to use this yield maintenance premium formula on your own.


In reality, each lender’s mortgage prepayment penalties will vary. Not every single lender will use that same formula to calculate yield maintenance penalties for borrowers. However, this formula is a helpful tool to help those with mortgages anticipate potential prepayment penalty fees. This of course also impacts investors’ gains as well. If you are very concerned about this, be sure to inquire about it before you make any commercial real estate investments.

If you are a new investor, you may have come across yield maintenance penalties during your time in the real estate market, whether in Comox Valley or elsewhere. You will certainly encounter yield maintenance prepayment premiums if you invest in commercial real estate investment opportunities, like REITs. Prepare for that using this post. This yield maintenance guide tells you all you need to know as an investor to protect your market returns. Once you understand them, you will certainly be glad these penalties exist.

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