Yield maintenance can be a new and unfamiliar term to newer real estate investors. What is it? How does it work?

Essentially, yield maintenance helps ensure the lender and their investors achieve a minimum yield on the loans they make. They need to ensure they stay profitable, and deliver on their guarantees to others.

Yield maintenance typically shows up as a prepayment premium or penalty in mortgage loan documents.This is a standard feature in many commercial real estate loans. How much it is can depend on a combination of interest rate, points, pre-payment penalties, and interest rate trends.

How Yield Maintenance Works

There are no absolute rules when it comes to applying this factor. Each lender can apply their own calculations, and desired minimum yield.