Loan Defeasance Calculator

What This Loan Defeasance Calculator Does

FeatureDescription
Defeasance TypesStandard Defeasance, Make-Whole Call, Yield Maintenance
Prepayment PenaltyNone, Step-Down (Declining), Fixed (5%)
Loan ParametersOriginal amount, current balance, interest rate, remaining term
Treasury RateCurrent rate for comparable maturity government bonds
Spread CalculationLoan rate minus treasury rate
Defeasance CostPresent value of remaining payments at the treasury rate
Legal/Admin FeesTypical $15,000-25,000 for defeasance process
Payment ScheduleShows remaining payments with PV calculations

Defeasance vs Other Prepayment Methods

MethodDescriptionTypical Cost
DefeasanceSubstitute government bonds as collateralPV of payments + fees
Yield MaintenancePrepayment penalty maintaining lender yield~Spread × Balance × Years
Make-Whole CallPV of remaining interest paymentsLarger than defeasance
Fixed PrepaymentStraight percentage penalty1-5% of balance
Step-DownDeclining penalty over timeStarts high, decreases

Key Formulas

CalculationFormula
Monthly PaymentP = L × [r(1+r)^n] / [(1+r)^n – 1]
Defeasance CostPV = PMT × [1 – (1+r)^-n] / r
Yield MaintenanceYM = Balance × (Loan Rate – Treasury) × (Years Remaining)
Make-WholeMW = PV of remaining interest payments

Example Calculation

Loan: $10M, 5.5% rate, 4 years remaining, 4.25% treasury

ComponentAmount
Monthly Payment~$55,000
Defeasance Cost (PV)~$2,480,000
Legal/Admin Fees$15,000
Total Defeasance Cost~$2,495,000
Prepayment Penalty (5%)$500,000
Savings vs Prepayment~$0 (depends on terms)

Defeasance Process Steps

StepDescriptionTimeline
1Review loan documents1-2 weeks
2Engage qualified intermediary1 week
3Purchase government securities2-3 weeks
4Legal documentation2-3 weeks
5Assignment and release1-2 weeks
Total6-10 weeks

When to Use Defeasance

ScenarioRecommendation
CMBS LoanAlmost always defeasance
Portfolio LoanMay allow prepayment
Interest rates risingDefeasance cheaper
Interest rates fallingPrepayment may be better
Selling propertyDefeasance required

Costs Included

Cost ItemTypical Amount
Legal Fees$10,000 – $15,000
Defeasance Consultant$5,000 – $10,000
Accounting Fees$2,000 – $5,000
Broker Fees$2,500 – $5,000
Recording Fees$500 – $1,500
Total$20,000 – $36,500

How to Use

  1. Enter Loan Information — original amount, current balance, interest rate, remaining term
  2. Select Defeasance Type — Standard, Make-Whole, or Yield Maintenance
  3. Select Prepayment Penalty — None, Step-Down, or Fixed
  4. Enter Treasury Rate — current rate for comparable maturity
  5. Enter Defeasance Date — when you plan to defease
  6. Add Legal/Admin Fees — typical $15,000-25,000
  7. View Results — total defeasance cost, savings vs prepayment

Key Differences

FeatureDefeasancePrepayment
CollateralGovernment bondsCash
Process Time6-10 weeks2-4 weeks
CostsPV of payments + feesPenalty + fees
CMBS LoansRequiredUsually prohibited
ComplexityHighLow

Keyboard Shortcuts

  • Ctrl/Cmd + Enter — Recalculate
  • Ctrl/Cmd + R — Reset to defaults
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