Defeasance Calculator
Estimate the full cost to defease a CMBS or conduit loan: securities portfolio cost, defeasance premium, itemized fees, and a side-by-side yield maintenance comparison.
Defeasance releases a property from a securitized mortgage by substituting a portfolio of government securities as collateral. The loan stays outstanding: the securities make every remaining debt service payment, and the lien comes off the real estate. It is the standard exit for CMBS and conduit loans that prohibit open prepayment, and it appears in many Fannie Mae and Freddie Mac loan documents as well.
This tool bootstraps a zero-coupon curve from current Treasury yields, prices every remaining payment on that curve, and adds the transaction fees a typical defeasance closing carries. When Treasury yields sit above the note rate, the portfolio can cost less than the loan balance. That negative premium is shown, not hidden.
Enter the loan terms, set the Treasury curve to current quotes, and compare the all-in cost against yield maintenance on the same loan. For the concepts behind the math, see our guides to defeasance, yield maintenance, and prepayment penalties.
Defeasance cost estimate
Treasury curve: CMT par yields (%)
Estimates only; loan documents control the required portfolio, the fee schedule, and the yield maintenance formula. Fee assumptions below.
| Typical closing fee | Assumption |
|---|---|
| Defeasance consultant | $9,500 |
| Servicer processing | $25,000 |
| Servicer legal | $15,000 |
| Securities intermediary | $12,600 |
| Accountant | $3,500 |
| Successor borrower legal | $6,500 |
| Rating agency | $0 |
| Total fees | $72,100 |
How the estimate is built.
The Treasury curve you enter is bootstrapped to a semi-annual zero-coupon curve with a refinement pass, so par bonds reprice to within a basis point. Each remaining loan payment, including the balloon, is discounted at the zero rate for its own date. Interest accrues on a 30/360 or Actual/360 basis to match the note. The securities portfolio cost is the sum of those discounted payments; the defeasance premium is that cost minus the loan balance on the defeasance date.
DV01 shows how much the portfolio cost moves for a one basis point parallel shift in the curve, which is the number to watch between rate lock and closing. The yield maintenance comparison prices the same remaining payments at the curve rate for the remaining term with the CMBS-standard 1 percent floor, using the same conventions as our yield maintenance calculator.
What this does not capture.
An actual defeasance closing buys specific securities with settlement dates, accrued interest, and bid/ask spreads rather than pricing cash flows off a smooth curve, and servicers vary in the portfolio they will accept. Fee schedules differ by servicer and deal size. Treat these figures as planning numbers for timing a refinance or sale, not as a quote. Related tool: the interest rate cap calculator for floating-rate debt.
Defeasance vs waiting: deciding when to refinance
A defeasance quote is only half of the decision. The other half is what waiting costs you. Refinancing now makes sense when what you gain from the new loan, between today and the date your loan opens to prepayment, is larger than the all-in defeasance cost plus the new loan's closing costs. If it is not, waiting is cheaper.
What you gain by refinancing now
- Cash out today. If the building has grown in value and NOI, a refinance can return equity now that otherwise sits in the building until the open window.
- A lower rate, if today's rates are below your note rate. The saving is the interest difference times the months until your open window.
- Escape from a loan that no longer fits: a sale you want to make, a recourse or reserve structure you want out of, or a supplemental loan your current lender will not provide.
- Locking today's rate if you expect rates to be higher by the time your loan opens. That is a market view, not a certainty, and it should be weighed as one.
What waiting costs and saves
Defeasance cost generally falls as your loan approaches its open period, because fewer payments remain to be covered by securities. It also moves with Treasury yields. When yields rise above your note rate, the securities portfolio can cost less than your loan balance, and the premium can turn small or negative. When yields fall, defeasance gets more expensive at exactly the moment a lower rate makes refinancing attractive. That tension is the whole decision.
Run it in this order:
- Price defeasance today with the calculator above, using current Treasury yields from the apartment loan data page.
- Price it again at a later date, such as six or twelve months out, to see how much of the cost disappears by waiting.
- Estimate the benefit of refinancing now: rate savings over the months until your open window, plus the value to you of any cash out.
- Add the new loan's closing costs to the defeasance cost. Compare the total against the benefit.
The refinance break-even calculator does steps 3 and 4: enter the prepayment cost from this tool, your balance, current and new rates and months to the open window, and it shows the months to recoup and the net cost of going now versus waiting. For how each prepayment structure works, including step-downs and yield maintenance, see apartment loan prepayment penalties.
One timing note: defeasance cost is fixed only when the securities are purchased, close to closing. Between your decision and closing the cost moves with Treasury yields, which is what the DV01 figure above measures. Build that range into the decision rather than relying on a single day's estimate.