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The question I get most asked is how does yield maintenance prepayment penalty work and should I be worried about it. This is especially true for borrowers who had previously borrowed from banks and are now looking at a loan from Freddie Mac or Fannie Mae. My short answer is that this is not something to worry about, but if you are taking a loan with yield maintenance you should not expect to pay it off until close to maturity because you will have a significant prepayment penalty. First what is yield maintenance (YM)? It’s basically a calculation that guarantees the lender will receive the interest payment from the loan for the full term of the loan (or yield maintenance period). The idea is that if you pay back the loan early, the owner can reinvest the proceeds from the money you return to them, plus the penalty amount in safe treasury securities and receive the same cash flow as they would by holding your loan. How is YM it calculated? All YM is not calculated exactly the same, but the general principal is the same. Basically it’s the difference (spread) between the note rate and the current yield on a specific treasury security that has the same remaining term as the loan (this is called the reinvestment rate). This spread is multiplied by the remaining term and then discounted back to current dollars. A rough way of determining the penalty is to subtract the treasury rate from a security with the same remaining term as the yield maintenance period (usually the loan term less 6 months) from the note rate. Then multiply that spread by the number of years left in the loan and multiply that by the loan amount. This result will be slightly higher than the actual prepayment penalty because we have not discounted the payments, but it should be close. As a kicker most YM loans have a 1% minimum prepayment penalty even if the calculation results in no penalty. Some people say with rates this low you do not need to worry about a YM prepayment penalty because when rates rise the spread will be reduced or eliminated completely. The problem with this analysis is that as time goes on the remaining term of the note goes down. So you are comparing your note rate to a treasury with a shorter term. As long as there is a yield curve the rate on shorter term securities are less than on longer term maturities. This has the effect of increasing the spread between the note rate and the corresponding treasury. |
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来自： 勇敢和坚持 > 《Business Training》
