Prepayment Penalty and Refinance Break Even Calculator
Compare yield maintenance, defeasance, and step down penalties against monthly savings, break even timing, and expected refinance hold period.
Request a financing review when you are ready to share the property, requested proceeds, and timeline.
How the Refinance Break Even Calculator Works
The calculator estimates the payment on the current loan and proposed refinance, then measures monthly savings against closing costs and three possible prepayment structures. The break even period is the number of months required for monthly savings to recover the selected penalty and refinance costs.
Monthly Savings = Current Payment - New Payment
Break Even Months = (Prepayment Cost + Closing Costs) / Monthly Savings
Net Savings During Hold = Monthly Savings × Hold Months - Prepayment Cost - Closing Costs
Yield Maintenance, Defeasance, and Step Down
Yield maintenance is a make whole calculation intended to compensate the lender for reinvesting prepaid principal at a lower rate. This tool estimates it from the present value of remaining payments and any balloon balance using the entered reinvestment rate, subject to a minimum penalty floor.
Defeasance replaces the real estate collateral with a portfolio of securities designed to reproduce the remaining scheduled debt service. The exact cost requires a live securities portfolio and specialist quote, so this tool uses an editable securities premium plus legal and transaction fees.
A step down structure applies a stated percentage to the outstanding balance. Enter the percentage that applies on the proposed payoff date according to the loan documents.
When Refinancing May Be Worth It
A refinance may be financially worthwhile when monthly savings recover the penalty and closing costs before the borrower expects to sell, refinance again, or reach maturity. The result does not account for every factor, including cash out proceeds, tax treatment, interest only periods, reserves, rate adjustments, loan assumption value, or the opportunity cost of cash paid at closing.
Refinance Break Even Worked Example
If a proposed refinance saves $12,000 per month and the applicable prepayment cost plus closing costs total $360,000, the simple break even period is 30 months. A borrower planning to hold the new loan for five years would compare 60 months of projected savings with those transaction costs and any risks not captured by the estimate.
Choosing Inputs and Reading the Comparison
Use the current payoff balance, remaining amortization, and prepayment provision from the executed loan documents. Use a proposed rate and amortization supported by a current financing scenario. The lowest estimated penalty is not automatically available because yield maintenance, defeasance, and step down provisions are contractual alternatives, not borrower elections.
Frequently Asked Questions
How is refinance break even calculated?
Add the applicable prepayment cost and refinance closing costs, then divide that total by estimated monthly payment savings. The result is the number of months required to recover the transaction costs.
Is yield maintenance calculated from the loan balance?
The balance matters, but an actual yield maintenance calculation also depends on remaining contractual payments, the balloon balance, the comparison or reinvestment rate, the payoff date, and any minimum penalty stated in the loan documents.
Does defeasance have a fixed cost?
No. Defeasance cost depends on the securities required to reproduce scheduled debt service, market yields at the time of closing, and legal, accounting, servicing, and transaction fees. A specialist quote is required.