Defeasance calculator
By Brad Beattie, Director, Capital Markets, Janover Capital LLC · Published
Defeasing a CMBS loan means buying U.S. Treasuries that pay every remaining installment and the balloon on schedule. The cost is those payments discounted on today's Treasury curve, read from the U.S. Treasury as of October 30, 2026, plus transaction costs. When your note rate is above Treasury yields, the securities cost more than the balance.
Worked example
A $15,000,000 interest-only loan at 6.84% (the median note rate of CMBS loans securitized in Nov 2024), 10-year term maturing December 1, 2034, with a seven-payment open period starting June 1, 2034. Defeased on December 1, 2026, the securities must pay 90 monthly installments plus the $15,000,000 balloon: $22,806,150 in all.
Discounted on the Treasury curve of October 30, 2026, that stream costs $17,047,215, which is $2,047,215 (13.65%) more than the balance. A 1% fall in Treasury yields would make the premium $3,085,519; a 1% rise, $1,081,491.
Every payment, its date, the Treasury zero yield and its present value
| Date | Payment | Zero yield | Present value |
|---|---|---|---|
| 2027-01-01 | $88,350 | 4.098% | $88,046 |
| 2027-02-01 | $88,350 | 4.188% | $87,730 |
| 2027-03-01 | $79,800 | 4.182% | $78,990 |
| 2027-04-01 | $88,350 | 4.194% | $87,143 |
| 2027-05-01 | $85,500 | 4.227% | $84,033 |
| 2027-06-01 | $88,350 | 4.250% | $86,517 |
| 2027-07-01 | $85,500 | 4.281% | $83,422 |
| 2027-08-01 | $88,350 | 4.305% | $85,880 |
| 2027-09-01 | $88,350 | 4.324% | $85,558 |
| 2027-10-01 | $85,500 | 4.339% | $82,497 |
| 2027-11-01 | $88,350 | 4.351% | $84,928 |
| 2027-12-01 | $85,500 | 4.361% | $81,890 |
| 2028-01-01 | $88,350 | 4.385% | $84,288 |
| 2028-02-01 | $88,350 | 4.406% | $83,959 |
| 2028-03-01 | $82,650 | 4.422% | $78,255 |
| 2028-04-01 | $88,350 | 4.438% | $83,325 |
| 2028-05-01 | $85,500 | 4.451% | $80,331 |
| 2028-06-01 | $88,350 | 4.463% | $82,684 |
| 2028-07-01 | $85,500 | 4.485% | $79,701 |
| 2028-08-01 | $88,350 | 4.505% | $82,022 |
| 2028-09-01 | $88,350 | 4.522% | $81,687 |
| 2028-10-01 | $85,500 | 4.538% | $78,739 |
| 2028-11-01 | $88,350 | 4.553% | $81,032 |
| 2028-12-01 | $85,500 | 4.566% | $78,108 |
| 2029-01-01 | $88,350 | 4.575% | $80,388 |
| 2029-02-01 | $88,350 | 4.584% | $80,065 |
| 2029-03-01 | $79,800 | 4.591% | $72,054 |
| 2029-04-01 | $88,350 | 4.599% | $79,454 |
| 2029-05-01 | $85,500 | 4.605% | $76,592 |
| 2029-06-01 | $88,350 | 4.612% | $78,827 |
| 2029-07-01 | $85,500 | 4.621% | $75,982 |
| 2029-08-01 | $88,350 | 4.630% | $78,193 |
| 2029-09-01 | $88,350 | 4.638% | $77,872 |
| 2029-10-01 | $85,500 | 4.645% | $75,062 |
| 2029-11-01 | $88,350 | 4.652% | $77,246 |
| 2029-12-01 | $85,500 | 4.659% | $74,458 |
| 2030-01-01 | $88,350 | 4.661% | $76,633 |
| 2030-02-01 | $88,350 | 4.664% | $76,327 |
| 2030-03-01 | $79,800 | 4.666% | $68,692 |
| 2030-04-01 | $88,350 | 4.669% | $75,749 |
| 2030-05-01 | $85,500 | 4.671% | $73,022 |
| 2030-06-01 | $88,350 | 4.673% | $75,155 |
| 2030-07-01 | $85,500 | 4.676% | $72,448 |
| 2030-08-01 | $88,350 | 4.679% | $74,562 |
| 2030-09-01 | $88,350 | 4.682% | $74,263 |
| 2030-10-01 | $85,500 | 4.684% | $71,588 |
| 2030-11-01 | $88,350 | 4.686% | $73,677 |
| 2030-12-01 | $85,500 | 4.689% | $71,023 |
| 2031-01-01 | $88,350 | 4.692% | $73,094 |
| 2031-02-01 | $88,350 | 4.694% | $72,798 |
| 2031-03-01 | $79,800 | 4.697% | $65,513 |
| 2031-04-01 | $88,350 | 4.699% | $72,239 |
| 2031-05-01 | $85,500 | 4.702% | $69,635 |
| 2031-06-01 | $88,350 | 4.704% | $71,665 |
| 2031-07-01 | $85,500 | 4.707% | $69,080 |
| 2031-08-01 | $88,350 | 4.710% | $71,092 |
| 2031-09-01 | $88,350 | 4.713% | $70,802 |
| 2031-10-01 | $85,500 | 4.715% | $68,248 |
| 2031-11-01 | $88,350 | 4.718% | $70,236 |
| 2031-12-01 | $85,500 | 4.720% | $67,702 |
| 2032-01-01 | $88,350 | 4.725% | $69,667 |
| 2032-02-01 | $88,350 | 4.729% | $69,376 |
| 2032-03-01 | $82,650 | 4.733% | $64,646 |
| 2032-04-01 | $88,350 | 4.737% | $68,816 |
| 2032-05-01 | $85,500 | 4.741% | $66,327 |
| 2032-06-01 | $88,350 | 4.745% | $68,252 |
| 2032-07-01 | $85,500 | 4.749% | $65,780 |
| 2032-08-01 | $88,350 | 4.753% | $67,686 |
| 2032-09-01 | $88,350 | 4.758% | $67,400 |
| 2032-10-01 | $85,500 | 4.762% | $64,960 |
| 2032-11-01 | $88,350 | 4.766% | $66,842 |
| 2032-12-01 | $85,500 | 4.770% | $64,421 |
| 2033-01-01 | $88,350 | 4.774% | $66,285 |
| 2033-02-01 | $88,350 | 4.779% | $66,002 |
| 2033-03-01 | $79,800 | 4.782% | $59,385 |
| 2033-04-01 | $88,350 | 4.787% | $65,468 |
| 2033-05-01 | $85,500 | 4.791% | $63,094 |
| 2033-06-01 | $88,350 | 4.795% | $64,919 |
| 2033-07-01 | $85,500 | 4.799% | $62,563 |
| 2033-08-01 | $88,350 | 4.803% | $64,370 |
| 2033-09-01 | $88,350 | 4.808% | $64,093 |
| 2033-10-01 | $85,500 | 4.812% | $61,767 |
| 2033-11-01 | $88,350 | 4.816% | $63,551 |
| 2033-12-01 | $85,500 | 4.820% | $61,244 |
| 2034-01-01 | $88,350 | 4.825% | $63,009 |
| 2034-02-01 | $88,350 | 4.829% | $62,734 |
| 2034-03-01 | $79,800 | 4.833% | $56,440 |
| 2034-04-01 | $88,350 | 4.838% | $62,214 |
| 2034-05-01 | $85,500 | 4.842% | $59,953 |
| 2034-06-01 | $15,088,350 | 4.846% | $10,533,752 |
Formula
Defeasance cost = Σ payment(i) × DF(t(i)) + transaction costs payment(i) = interest(i) + scheduled principal(i), and the balloon on the last date interest(i), Actual/360 = balance × note rate × days in the period ÷ 360 t(i) = days from the release date to payment date i ÷ 365 DF(t) = discount factor bootstrapped from the Treasury par curve Premium = securities cost − loan balance
The Treasury publishes par yields: the coupon at which a new note of each maturity would price at 100. The calculator bootstraps those into a discount factor for every half year out to 30 years (bills at 6 months and under are simple interest), then interpolates between them for each payment date. That is the cost of a portfolio of zero-coupon Treasuries matching the loan exactly. A real portfolio buys notes and bills that mature on or just before each date and has small cash residuals, so the consultant's figure will differ somewhat.
What moves the cost
| Change | Effect on the securities cost |
|---|---|
| Treasury yields fall | Up. Each payment is discounted less. |
| A higher note rate | Up. Bigger interest payments to replace. |
| More time to the open date | Up when your rate is above Treasuries: more payments carrying the gap. |
| Amortization | Down slightly: some principal comes back early, and the balloon is smaller. |
| Defeasing to the open date instead of maturity | Down: fewer payments, if your documents allow it. |
The other costs of a defeasance
Beyond the securities, a defeasance has fixed transaction costs. The agreements name them but set no amounts, so none are shown here; ask for quotes before you commit.
| Cost | What it is | Where it comes from |
|---|---|---|
| Successor borrower | A new single-purpose entity takes over the loan and holds the securities until they pay it off. The servicer is to use reasonable efforts to have the borrower pay all costs of the defeasance, including maintaining that entity. | PSA 3.18(h)(iv), (v) |
| Independent accountant | A certified public accountant certifies that the securities will pay every scheduled payment, balloon included, on time. | PSA 3.18(h)(ii) |
| Legal opinions | Opinions of counsel that the trust holds a first-priority perfected security interest in the securities, at the borrower's expense, plus the REMIC requirements for defeasance collateral. | PSA 3.18(h)(iii); 26 CFR 1.860G-2(a)(8) |
| Rating agency confirmation | Required at the borrower's expense, unless the servicer certifies the loan is under $20 million, under 5% of the pool and not one of its ten largest loans. | PSA 3.18(h)(vi) |
| Master servicer | The master servicer processes every defeasance and keeps the defeasance fees the loan documents charge. | PSA 3.18(h); 3.11(a) |
| Defeasance consultant and securities broker | Most borrowers hire a defeasance consultant to build the portfolio, buy the securities and run the closing. Their fees are set by contract with you. | Market practice |
| Your own counsel and lender counsel | Your lawyer, and the servicer's counsel reviewing the package, both bill the transaction. The loan documents usually make the borrower pay all of the lender's costs. | Prospectus p. 227: borrower pays costs of purchasing the securities |
Sources
- BANK5 2025-5YR14 prospectus (Form 424B2, filed 2025-04-02). "Voluntary Prepayments" (p. 224: 19 of 25 loans lock out then defease; open periods of 4 to 7 payments, 7 for 17 loans) and "Defeasance" (pp. 226-227: securities paying every scheduled payment including the balloon, 30 days notice, successor borrower). Actual/360 accrual, p. 222.
- BANK5 2025-5YR14 Pooling and Servicing Agreement, dated as of April 1, 2025 (Form 8-K, Exhibit 4.1, filed 2025-04-02). Section 3.18(h), pp. 245-246: replacement collateral, accountant certificate, opinions of counsel, successor borrower, rating agency confirmation; master servicer processes defeasances and keeps defeasance fees.
- 26 CFR 1.860G-2(a)(8), defeasance collateral in a REMIC (eCFR). Defeasance with government securities, not within two years of the REMIC start-up day.
- U.S. Department of the Treasury, Daily Treasury Par Yield Curve Rates. The par yield curve the securities are priced on.
- SEC EDGAR Form ABS-EE asset-level data (Schedule AL) for CMBS trusts, as compiled by cmbs.news. Example note rate: median of loans securitized in Nov 2024.
Related: how defeasance works, yield maintenance calculator, CMBS prepayment penalties, selling with a CMBS loan, assumption calculator.
Questions people ask
How is defeasance cost calculated?
The borrower buys U.S. Treasury securities whose payments cover every remaining scheduled loan payment, and the balloon, through the open date or maturity. The cost is what those securities cost today: each payment discounted at the Treasury yield for its date. Add the transaction costs (successor borrower, accountant, legal, rating agency, servicer and consultant).
Why does defeasance cost more when Treasury yields are low?
The securities must earn enough to pay your note rate. When Treasuries yield less than your loan, you need more of them to produce the same payments, so the portfolio costs more than the balance. When Treasuries yield more than your note rate, the portfolio can cost less than the balance.
Can defeasance cost less than the loan balance?
Yes. If Treasury yields for the remaining term are above your note rate, the securities cost less than the balance you are retiring. You still pay the transaction costs, and you still need to pay off or refinance the property free of the old loan.
When can I defease a CMBS loan?
After the lockout in your loan agreement. REMIC rules bar defeasance in the first two years after the trust closes, and in BANK5 2025-5YR14 every defeasance loan locks out for at least two years after closing. Notice is typically 30 days.
Defeasance or yield maintenance: which does my loan have?
Your loan agreement says. In BANK5 2025-5YR14, 21 of 25 loans (82.3% of the pool) allow defeasance, a few allow yield maintenance, and some allow either. The yield maintenance calculator covers the other kind.
Defeasing to refinance or sell?
If the new loan is the reason, Janover Capital LLC can price it alongside the defeasance. We are a commercial mortgage advisor, not a lender.