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.
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Use this estimate to prepare, or request a financing review when you are ready to share the property, requested proceeds, and timeline.
Compare three common prepayment structures against the estimated monthly savings from a refinance. Your loan documents and payoff statement control the actual penalty, defeasance requirement, and permitted prepayment date.
Current Loan
Proposed Refinance
Yield Maintenance
Defeasance
Step Down
Current Monthly Payment
$16,111.86
New Monthly Payment
$13,193.39
Monthly Savings
$2,918.48
| Prepayment Structure | Estimated Cost | Break Even | Net Savings During Hold | Is Refinancing Worth It? |
|---|---|---|---|---|
| Yield Maintenance | $275,361.84 | 112 months | -$150,253.26 | Not within the selected hold |
| Defeasance | $155,000.00 | 71 months | -$29,891.42 | Not within the selected hold |
| Step Down | $40,000.00 | 31 months | $85,108.58 | Potentially yes |
Yield maintenance is estimated from the present value of the remaining payments and balloon using the entered reinvestment rate, subject to the selected floor. Defeasance is modeled from an estimated securities premium plus transaction fees. Neither result replaces a servicer quote.
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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.
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.