Defeasance Calculator
Estimate the cost of defeasing your CMBS or commercial real estate loan. Enter your loan details below to see the treasury bond portfolio required and total defeasance cost.
What Is Defeasance?
Defeasance is a provision in commercial real estate lending that allows borrowers to release their property from a mortgage lien by substituting a portfolio of U.S. Treasury securities for the original collateral. Rather than simply prepaying the loan, the borrower purchases government bonds whose cash flows exactly match the remaining scheduled payments on the loan. The CMBS trust continues to receive its expected payments, the borrower gets their property back, and both parties are satisfied.
Defeasance is most commonly associated with CMBS (Commercial MortgageBacked Securities) loans, where the loan has been securitized and sold to investors. Because investors purchased bonds backed by the mortgage payments, the servicer cannot simply accept an early payoff – the cash flow stream must be maintained. Defeasance solves this by replacing the property collateral with risk-free government securities.
How Is Defeasance Cost Calculated?
The cost of defeasance has several components:
Treasury Bond Portfolio Cost – The largest component. A portfolio of U.S. Treasury securities (bills, notes, and bonds) is assembled so that their coupon payments and maturities exactly match each remaining scheduled payment on the loan. When market interest rates are lower than your loan’s interest rate, treasuries trade at a premium, making defeasance more expensive. When rates are higher, defeasance becomes cheaper.
Transaction Fees – Typically $50,000-$75,000 in total, including: defeasance consultant/advisor fee, legal counsel for borrower and servicer, accountant verification, successor borrower fee, servicer processing fee, and rating agency fee (if applicable).
Interest Shortfall – If your defeasance closes mid-month, you may owe interest for the period between your last payment and the substitution date.
Defeasance vs Yield Maintenance
Both defeasance and yield maintenance are prepayment provisions in commercial real estate loans, but they work in fundamentally different ways:
Yield Maintenance
Defeasance
Which costs more?
It depends on the interest rate environment. In a rising rate environment (rates above your loan rate), defeasance tends to be cheaper because treasuries are discounted. In a falling rate environment, both methods become expensive, but yield maintenance is often the cheaper option because defeasance requires purchasing premium-priced bonds.
Live Treasury Rates
Access real-time U.S. Treasury yields across the full curve. See the rates that drive defeasance costs.
Yield Maintenance Calculator
Compare your defeasance cost against yield maintenance to find the most cost-effective prepayment option.
Forward Curves
View SOFR and Treasury forward curves to understand where rates are heading and how it affects future defeasance costs.
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