yield maintenance
Definition
A type of prepayment fee that is based on the movement of interest rates. The fee is charged by the lender to the borrower, and the borrower pays the fee in the hope that the mortgage-backed investment will provide a higher yield. The yield maintenance formula is the present value of remaining payments multiplied by the difference between the bond interest rate and the rate on a Treasury note of the same duration. It is often used in the commercial mortgage market in the valuation of securities.
Use yield maintenance in a sentence
“ We had some yield maintenance going on and we all felt like it was pushing us in the right direction. ”
“ We expected some yield maintenance, so when the fee came we were well prepared for it and were able to move ahead quickly. ”
“ A man and his wife went to the bank to secure a loan for their new business and they were weary because the yield maintenance was too high. ”
