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.

Loan Details

Original Loan AmountThe original principal balance of the loan at origination. Used to compute the amortization schedule from origin.
Note RateThe fixed note rate on the loan, entered as a percentage (e.g. 5.25 for 5.25%).
Day CountDay count convention used to accrue interest. Actual/360 is typical for US CRE loans; 30/360 is common for agency debt.
Amortization TypeAmortizing: fixed P&I each month. Interest Only: interest-only through maturity. Partial IO: interest-only for an initial period, then amortizing.
Defeasance DateThe date you plan to defease the loan. Remaining scheduled payments from this date onward are what you need to purchase Treasuries to cover.
First Payment DateThe first scheduled monthly payment date on the loan. Used as the anchor to build the amortization schedule from origin.
Maturity DateThe loan maturity date: the date of the final balloon/principal payment.
Amortization (months)The amortization term in months (e.g. 360 for a 30-year amortization). Can be longer than the loan term when there's a balloon at maturity.
Monthly Payment(optional)The scheduled P&I payment. If left blank we compute it from the loan amount, rate and amortization term.

Estimates update automatically as inputs change.

Enter mortgage details to estimate 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:

  1. 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.

  2. 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).

  3. 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

Yield Maintenance requires the borrower to pay a lump-sum penalty designed tomake the lender "whole." The penalty is typically the present value of theremaining interest payments, discounted at a treasury rate plus a spread. It is asingle cash payment at the time of prepayment.
vs

Defeasance

Defeasance requires substituting the loan collateral with a matched portfolio ofU.S. Treasury securities. No penalty is paid -- instead, the borrower purchasesbonds whose cash flows replicate the loan payments through maturity.

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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FAQs

What is defeasance?

How is defeasance cost calculated?

What is the difference between defeasance and yield maintenance?

What is a defeasance clause in real estate?

How long does defeasance take?

When does defeasance make sense?

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