CMBS prepayment penalties: the four structures and how to read yours

A CMBS prepayment penalty is what your loan charges to repay before the open period: nothing is allowed during a lockout, then you either defease (buy Treasuries to replace the payments) or pay yield maintenance or a fixed premium. Most conduit loans open at par only for the last few payments; in BANK5 2025-5YR14 the open period was 4 to 7 payments (prospectus, p. 225).

The word “penalty” is borrowed from bank loans. CMBS documents call it prepayment protection, because the bonds were priced on the assumption that your interest keeps arriving. The protection is a feature of the bonds, not a choice by the servicer, which is why servicers rarely negotiate it.

The four structures

Structure	What you can do	What it costs	Who handles it
Lockout	Nothing: no voluntary prepayment	Not available at any price	n/a
Defeasance	Replace the property with government securities that pay the remaining schedule	Cost of the securities plus transaction costs	Master servicer (defeasance)
Yield maintenance	Prepay with a premium that keeps bondholders whole	Formula tied to Treasury yields, often with a 1% floor	Master servicer (yield maintenance)
Prepayment premium	Prepay with a fixed or step-down percentage	Set in the note	Master servicer
Open period	Prepay at par	No premium	Master servicer

Many loans charge “the greater of a Yield Maintenance Charge or Prepayment Premium” during the same window, which is the phrase the BANK5 prospectus uses.

What a recent conduit pool looked like

BANK5 2025-5YR14 closed in April 2025 with 25 loans. Its prospectus (pp. 224-225) breaks down the schedules as of origination:

Schedule	Loans	Share of pool
Lockout, then defeasance, then open	19	76.0%
Lockout, then yield maintenance or prepayment premium, then open	2	10.5%
Yield maintenance or prepayment premium from the start, then open	2	7.3%
Lockout, then premium, then premium or defeasance, then open	2	6.2%

Its open periods, in monthly payments before maturity (p. 225):

Open period	Loans	Share of pool
4 payments	4	14.0%
5 payments	2	2.2%
6 payments	2	6.1%
7 payments	17	77.8%

A ten-year deal from 2026, BMO 2026-C15 (prospectus filed August 18, 2026), shows open periods of 2 to 7 payments. Lockout-then-defeasance is the dominant pattern in both.

How to read your own schedule

Every conduit prospectus has an Annex A-1 that lists each loan’s “Prepayment Provisions” in a shorthand counted in monthly payments. The Grand Plaza loan in BANK5 2025-5YR14 (Annex A-3, Loan #4) reads L(25),D(28),O(7):

• L(25): locked out for the first 25 payments.
• D(28): defeasance allowed for the next 28.
• O(7): open for the last 7, prepayable at par.

The same annex uses YM1 for a yield maintenance period and DorYM1 where the borrower may choose defeasance or yield maintenance. The Las Olas City Centre loan reads L(11),YM1(14),DorYM1(28),O(7); the annex footnotes and the loan agreement define exactly what each period charges. Add up the numbers and you get the loan term in months. To find your loan, search your property on cmbs.news or look up the trust on who is my special servicer, then open that trust’s prospectus on EDGAR.

Exits that owe nothing extra

• The open period. Give the notice your agreement requires. The October 2025 1010 Pacific Street loan agreement allows an open-period payoff in whole, not in part, on at least 30 days’ notice (Section 2.7(a)).
• Casualty and condemnation. Generally no yield maintenance is required for these prepayments unless an event of default is continuing (BANK5 prospectus, p. 223).
• Assumption. A buyer who takes over the loan triggers no prepayment at all, only assumption fees and costs. See CMBS loan assumption.
• Releases tied to tenant purchase options or sales, where the agreement specifically allows a partial prepayment or partial defeasance before the lockout ends (p. 223). See partial releases.

Exits that cost more

Prepaying in default. The Pacific Street agreement makes a Default Yield Maintenance Premium, the greater of 5% of the debt prepaid and regular yield maintenance, part of the debt after an event of default (Sections 1.1 and 2.7(c)). If your loan is heading into trouble, see CMBS loan default and talk to Janover Capital LLC through help before the transfer to special servicing.

Choosing between them when you have a choice

1. Pull the dates: when the lockout ended, when the open period starts, and your planned sale or refinance date.
2. Price both exits on the same date with the defeasance calculator and the yield maintenance calculator. Both use the live Treasury curve.
3. Compare against waiting. If the open period is a few months away, the interest you pay while waiting may be cheaper than either premium. The refinance calculator shows how today’s rate compares with yours.
4. If the property is being sold, ask whether the buyer would assume.

When you are ready to refinance, Janover Capital LLC can line up the new loan to close on the day your prepayment or defeasance does. It is a commercial mortgage advisor, not a lender. Get a CMBS quote. How new-loan prepayment terms are negotiated is on CMBS loan terms.

This page describes loan documents and offering disclosures. It is not legal advice.

Sources: BANK5 2025-5YR14 prospectus, pp. 223-225 and Annex A-3 (Grand Plaza); BMO 2026-C15 prospectus, August 18, 2026; 1010 Pacific Street loan agreement, October 1, 2025, Sections 1.1 and 2.7.