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Worked example

Two $15,000,000 interest-only CMBS loans, for an owner planning to sell in five years: a 10-year loan at the 12-month median of 6.19% with defeasance, and a 5-year loan at 6.46% with yield maintenance. No fees entered.

	10-year, defeasance	5-year, yield maintenance
Interest over 5 years	$4,642,500	$4,845,000
Prepayment cost at the sale	$927,244	$0
Total cost	$5,569,744	$4,845,000
All-in annual cost	7.22%	6.46%

The 5-year loan matures when the owner sells, so it pays no prepayment cost. The 10-year loan has five years left at the sale; defeasing it at the 5-year Treasury of 4.71% (October 30, 2026) costs $927,244. The lower rate does not make up for the exit.

Formulas

Payment = interest only (A × r ÷ 12), or level: A × (r ÷ 12) ÷ (1 − (1 + r ÷ 12)^−n) Total cost = interest paid over the hold + fees + prepayment cost at sale All-in annual cost = 12 × i, where (A − fees) = Σ payment(m) ÷ (1 + i)^m + (balance + prepayment) ÷ (1 + i)^H Prepayment cost at sale, by type: Step-down: balance × the percentage for that loan year Flat: balance × the percentage Yield maintenance: max(minimum × balance, PV of balance × (r − T) ÷ 12 for each month left, at T) Defeasance: PV at T of the remaining payments and the balloon − balance Open, or inside the open period: 0 T = Treasury yield for the remaining term at sale

Yield maintenance follows the interest-differential definition in the BANK5 2026-5YR24 prospectus (Footnotes to Annex A-1, "Yield Maintenance Premium", definitions A to I, pp. A-1-25 to A-1-26); defeasance here uses one Treasury yield for simplicity. For a full curve-based defeasance price, use the defeasance calculator. Defeasance can come out below the balance when Treasury yields are above the note rate; that shows as a negative prepayment cost.

Sources

1. SEC EDGAR Form ABS-EE asset-level data (Schedule AL) for CMBS trusts, as compiled by cmbs.news. Median 10-year and 5-year CMBS note rates, Oct 2025 to Oct 2026 (294 and 753 loans).
2. BANK5 2026-5YR24 prospectus (Form 424B2, filed 2026-08-20). Footnotes to Annex A-1, "Yield Maintenance Premium", definitions A to I, pp. A-1-25 to A-1-26: the yield maintenance formula and 1% minimum.
3. BANK5 2025-5YR14 prospectus (Form 424B2, filed 2025-04-02). "Voluntary Prepayments", p. 224: open periods of 4 to 7 payments; 7 is the most common in that pool.
4. U.S. Department of the Treasury, Daily Treasury Par Yield Curve Rates. Treasury yields for the prepayment cost at sale.

Related: CMBS vs bank loans, CMBS vs life company loans, CMBS prepayment penalties, CMBS loan terms.

Questions people ask

How do I compare commercial mortgage offers?

On total cost over the time you expect to own the property, not the rate alone. Add the interest, the lender and third-party fees, and what it would cost to prepay in the year you plan to sell or refinance. The all-in annual cost (an internal rate of return on the loan's cash flows) puts offers with different fees and terms on one line.

Why can a lower rate cost more?

Because of the exit. A 10-year CMBS loan with defeasance sold in year five can cost more to pay off than a slightly higher-rate loan with a step-down penalty or one that matures when you sell. Fees paid at closing also weigh more on a short hold.

What is a step-down prepayment penalty?

A fixed percentage of the balance that falls each year, written as 5-4-3-2-1 for 5% in year one down to 1% in year five. It is common on bank and some life company loans. CMBS loans instead use defeasance or yield maintenance, whose cost moves with Treasury yields.

What is an all-in annual cost?

The single annual rate at which the money you receive at closing (the loan less fees) equals the present value of everything you pay back: monthly payments, the balance at sale and the prepayment cost. With no fees and no exit cost, it equals the note rate.