Know Your Exit Cost. Before You Make the Call.

Defeasance is a process that allows a commercial real estate borrower to prepay a fixed-rate mortgage by substituting a portfolio of U.S. Treasury securities that replicate the remaining loan payment schedule. Unlike yield maintenance (which is a cash penalty paid to the lender), defeasance involves purchasing actual government bonds that are placed in a trust to make the remaining debt service payments on behalf of the borrower. The original collateral property is then released from the mortgage lien.

The cost of defeasance depends on the relationship between current Treasury rates and the loan's coupon rate. When Treasury rates are lower than the loan rate, defeasance costs more because the replacement securities must be purchased at a premium to generate sufficient cash flows. When rates are higher, defeasance can be significantly cheaper — sometimes even resulting in a net benefit to the borrower.

A defeasance calculator estimates this cost by modeling the remaining loan payment schedule, matching it against current Treasury yields across the relevant maturities, pricing the required securities portfolio, and adding transaction fees (typically $50,000-$75,000 for legal, accounting, and intermediary costs). The CRELYTIC Defeasance Calculator does this automatically using real-time Treasury rate data, and also provides yield maintenance comparison and cost-timing breakeven analysis so borrowers can determine the optimal prepayment strategy and timing.

Common scenarios where defeasance calculations are critical include property sales where the buyer wants a clean title, refinancing to capture lower rates on a new loan, and portfolio restructuring where capital locked in one asset needs to be redeployed. The CRELYTIC calculator is free to use at crelytic.ai/defeasance-calculator with no signup required.