Defeasance substitutes a Treasury portfolio for the property as collateral; cost equals the price of the Treasuries needed to replicate the loan's cash-flow obligation. Yield maintenance is a contractual penalty equal to the present value of the lender's lost interest income. Both rise sharply when current Treasury yields fall below the loan rate.
Mechanically different, economically similar
Defeasance (CMBS): the borrower buys a portfolio of US Treasury securities whose cash flows match the remaining payments on the loan. The Treasuries become the loan collateral; the property is released. The cost is the market price of those Treasuries plus transaction fees (typically $50K to $150K). When current Treasury yields are below the loan coupon, the Treasury portfolio costs more than the loan balance, that excess is the economic defeasance cost.
Yield maintenance (agency, life co, some bank perm): the contractual prepayment penalty equal to the present value of the difference between the loan rate and the current matched-maturity Treasury yield, applied to the remaining loan principal over the remaining loan term. Stated as a formula in the loan documents; calculable in a spreadsheet without a defeasance consultant.
Sources
- Treasury Constant Maturity Series (DGS5, DGS10) · Federal Reserve Bank of St. Louis (FRED) · weekly
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1