yield maintenance

Definition

A prepayment penalty on commercial loans calculated to ensure the lender receives their originally expected yield, even if you pay off the loan early. It's the financial equivalent of breaking up with your bank and having to pay damages.

Example Usage

The yield maintenance penalty for paying off the loan five years early came to a shocking $1.2 million.

Origin

Financial term combining 'yield' (return on investment) with 'maintenance' (preserving that return)

Fun Fact

In low interest rate environments, yield maintenance penalties can exceed the remaining loan balance, effectively trapping borrowers in their loans.

Source: Commercial mortgage financing terminology

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