How do you explain yield maintenance?

How do you explain yield maintenance?

Yield maintenance is a sort of prepayment penalty that allows investors to attain the same yield as if the borrower made all scheduled interest payments up until the maturity date.

What is yield maintenance premium?

Yield Maintenance Premium . Yield Maintenance Premium means the amount (if any) which, when added to the remaining principal amount of the Note or the principal amount of a Defeased Note, as applicable, will be sufficient to purchase U.S. Obligations providing the required Scheduled Defeasance Payments.

What is a prepayment refund?

The Service Provider shall refund any sums that the District has prepaid, and that remain unearned at the time of termination, within 45 calendar days after termination, except as the Parties may otherwise agree in writing.

What is the difference between defeasance and yield maintenance?

Yield maintenance is the actual prepayment of the loan, while defeasance entails a substitution of collateral and a legal assumption of the loan by the successor borrower. A yield maintenance prepayment has two components: the unpaid principal balance of the loan and a prepayment penalty.

What is yield maintenance real estate?

Yield maintenance = present value of remaining payments on the mortgage x (interest rate – Treasury yield). Defeasance. Rather than paying a prepayment fee, the real estate collateral for the loan is replaced with another cash-flowing asset, typically a Treasury security or a Fannie Mae security.

How are loan prepayment penalties calculated?

Multiply your principal by the difference (200,000 * 0.02 = 4,000). Divide the number of months remaining in your mortgage by 12 and multiply this by the first figure (if you have 24 months remaining on your mortgage, divide 24 by 12 to get 2). Multiply 4,000 * 2 = $8,000 prepayment penalty.

What is the difference between advance and prepayment?

Advance is payment without receipts of Goods/Services. A prepayment is made when a selling company receives payment from a buyer before the seller has shipped goods or provided services to the buyer.

How is prepayment treated in accounting?

Accounting for Prepayments From the perspective of the buyer, a prepayment is recorded as a debit to the prepaid expenses account and a credit to the cash account. When the prepaid item is eventually consumed, a relevant expense account is debited and the prepaid expenses account is credited.

What does it mean to defease a loan?

Defeasance is a provision in a contract that voids a bond or loan on a balance sheet when the borrower sets aside cash or bonds sufficient enough to service the debt.

What is a prepayment clause in a mortgage?

A prepayment penalty clause states that a penalty will be assessed if the borrower significantly pays down or pays off the mortgage, usually within the first five years of the loan. Prepayment penalties serve as protection for lenders against losing interest income.

What is yield maintenance in commercial real estate?

Yield maintenance is a type of prepayment penalty for commercial mortgages which reimburses a lender for the potential returns they would have made if the borrower was not prepaying their debt.

How do you calculate yield maintenance?

How to Calculate Yield Maintenance. The formula for yield maintenance premium is: Yield Maintenance = Present Value of Remaining Payments on the Mortgage x (Interest Rate – Treasury Yield) The Present Value factor in the formula can be calculated as (1 – (1+r)-n/12)/r. where r = Treasury yield. n = number of months.

How to calculate yield maintenance?

How to Calculate Yield Maintenance The Yield Maintenance Formula. Present Value of Remaining Payments: This refers to the present value of the remaining balance on the loan. Example. Let’s say that you’ve taken out a 7-year commercial mortgage with a 30-year amortization schedule. Internal Cost of Funds Index.

What is a yield maintenance prepay penalty?

Yield maintenance is a prepayment penalty that guarantees a lender’s rate of return on a loan . It compensates the lender for the amount of interest that it would lose due to the prepayment. After all, if the borrower pays off a loan, then the lender can’t collect further interest payments.

What is yield maintenance?

Yield maintenance is the actual prepayment of the loan. Defeasance, on the other hand, entails a substitution of collateral and assumption of the loan by the successor borrower. A yield maintenance prepayment usually consists of two portions: The loan’s unpaid principal balance