yield maintenance

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.