Apartment Refinance Break-Even Calculator
Refinance now and pay the prepayment cost, or wait for the open window. The math, side by side.
The break-even calculator compares paying your prepayment cost to refinance now with waiting until your loan's open window. It takes your balance, current rate, months to the open window, prepayment cost, new rate and closing costs, and returns the monthly interest difference, the months it takes to recoup the cost, and the net cost of refinancing now versus waiting.
What the calculator answers
This calculator answers a narrow question that comes up whenever rates fall below the rate on your loan: is it cheaper to pay the prepayment cost and refinance now, or to keep paying the higher rate until the penalty goes away. It puts the interest you would save next to the cost you would pay to get it. It is for owners of 5+ unit buildings with a fixed-rate loan that still carries a prepayment premium.
Refinance now or wait?
Estimates only, not a loan quote.
How to use it
Six inputs, all found in your loan documents or a lender's quote.
Balance
The current principal balance from your servicer's monthly statement. If you also plan to take cash out, still enter today's balance: this tool compares the cost of the existing debt, and the cash-out calculator handles proceeds.
Current rate
The note rate on your loan today, from the promissory note or your monthly statement.
Months to open window
The number of months until you can prepay without a premium. Find it in the prepayment section of your note or loan agreement. Many fixed-rate loans open near the end of the term: Freddie Mac's Conventional Small loans, for example, carry no prepayment premium for the final 90 days. On a step-down loan, the premium falls each year without reaching zero until the schedule ends, so enter the months to the step you are comparing against.
Prepayment cost now
What it would cost to prepay today, as a percentage of the balance. On a step-down loan, read the current year's percentage from the schedule. On yield maintenance or defeasance, ask your servicer for a current quote, because both depend on Treasury yields and change daily. The yield maintenance calculator and defeasance calculator give a first estimate.
New rate
The rate on the refinance loan from a quote. Do not use a published average. Your rate depends on the program, term, leverage and the spread a lender offers on your deal. See apartment refinance rates for how it is built.
Closing costs
The cost of the new loan as a percentage of the balance: lender fees, appraisal, third-party reports, legal and title. The closing cost estimator builds this number line by line.
Worked example
Say you owe $5,000,000 at 7.25%, and your loan opens to prepayment in 18 months. Prepaying today would cost 2% of the balance. A lender quotes 6.0% on a new loan, with closing costs of 1.5%.
| Refinance now vs wait | Amount |
|---|---|
| Prepayment cost today (2.0%) | $100,000 |
| Interest saved per month | $5,208 |
| Interest saved over 18 months | $93,750 |
| Months to earn back the penalty | 19.2 |
| Waiting is cheaper by | $6,250 |
Read the months to recoup against the months to the open window. If you recoup the prepayment and closing costs well before the window opens, refinancing now wins on this math. If the two numbers are close, waiting costs little and keeps your options open. The net cost line puts both paths in dollars over the same period, so you can see the size of the decision, not only its direction.
Keep in mind that waiting still ends in a refinance, so you pay closing costs on both paths eventually. What refinancing now really buys is the rate gap for the months before the window opens, and what it really costs is the prepayment premium.
What this tool assumes
- The new rate holds. The biggest risk in waiting is that rates rise before your window opens, and the biggest risk in refinancing now is that they fall after you lock. The calculator uses the rate you enter for both paths. Run it at a higher new rate to see what waiting could cost.
- Interest only. It compares interest cost. It does not value a change in amortization, loan term, recourse or prepayment terms on the new loan.
- Same balance. It compares the same balance on both paths. A cash-out refinance changes the picture, so size that separately.
- A quoted prepayment cost. Yield maintenance and defeasance costs change with Treasury yields. A quote from last month may be wrong today.
- No taxes. Prepayment costs and closing costs may be treated differently for tax purposes. Confirm with your tax advisor.
What to do with your result
If refinancing now wins clearly, get a current prepayment quote from your servicer and two or three loan quotes, then rerun with real numbers. Compare those quotes on total cost over your hold with the term sheet comparison, not on rate alone, and check the new loan's own prepayment terms so you do not repeat the problem.
If waiting wins or the result is close, put the open-window date in your calendar with the maturity planner and start the file early enough to close the day the window opens. If you are deciding among extending, refinancing and selling, the extend, refinance or sell calculator compares all three over five years. The prepayment penalty guide explains how each penalty type is calculated.
Frequently asked questions
Is it worth paying a prepayment penalty to refinance an apartment loan?
It is worth it when the interest you save before your open window exceeds the prepayment cost plus the extra closing costs of acting now. The calculator measures that by comparing monthly interest at the two rates with the upfront cost. The answer turns on three things: the rate gap, the size of the penalty and how many months remain until the penalty ends.
Where do I find when my prepayment penalty ends?
In the prepayment section of your promissory note or loan agreement. It sets out the type of premium, such as yield maintenance, defeasance or a step-down schedule, and the date or period when you can prepay at par. Fixed-rate agency loans commonly open near the end of the term. Freddie Mac's Conventional Small loans, for instance, carry no premium for the final 90 days.
Why does my yield maintenance quote keep changing?
Yield maintenance compensates the lender for the interest it loses when you prepay, measured against current Treasury yields. When Treasury yields fall, the premium rises, and when they rise, it falls. Defeasance costs move the same way because they depend on the price of the Treasury securities bought to replace your payments. Ask your servicer for a fresh quote before deciding.
What if rates go up while I wait?
Then waiting costs more than the calculator shows, because the new rate in the open window would be higher than the rate you entered. The calculator holds the new rate constant. To see the risk, rerun it with a higher new rate for the waiting path and compare. If a small rate increase would erase the advantage of waiting, refinancing now is the safer choice.
Does this work for a step-down prepayment penalty?
Yes. Enter the current year's step-down percentage as the prepayment cost and the months until the next lower step, or until the penalty ends, as the months to the open window. Running it once for each remaining step shows whether it pays to wait for the next drop rather than the final one.
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