How to Calculate Yield Maintenance

Yield maintenance is an additional fee that some lenders charge to borrowers if they choose to pay off their loan early. Lenders charge this fee in order to ensure that they still make the expected revenue from the loan regardless of when it is paid back. Knowing how to calculate yield maintenance will allow you to make more informed decisions regarding major financial decisions such as whether to refinance your mortgage.

Instructions

1

Gather the necessary information. You will need to know the initial principle of the loan and the interest rate of the loan. You will also need to know the amount of time between the date the loan was originally expected to be paid off and the date the loan will actually be paid off. Finally, you will need to know the interest rate of a treasury note if it was held for this same amount of time.

2

Subtract the interest rate of the treasury note from the interest rate of the loan. For example, if the interest rate on the loan was 7 percent and the interest rate on a treasury note of the same duration was 3 percent, you would subtract 3 from 7 to get 4 percent. We will call the result of this calculation the penalty interest rate.

3

Multiply the penalty interest rate by the initial principle of the loan. For example, if you determined in the previous step that you had a penalty interest rate of 4 percent and the loan's initial principle was $400,000, you would multiply 400,000 by 0.04 to get $16,000. We will call the result of this step the annual penalty cost.

4

Multiply the annual penalty cost by the number of years that the loan was paid off early. For example, if you determined from the previous step that your annual penalty cost was $16,000 and you paid the loan of five years early, you would multiply 16,000 by five to get a yield maintenance fee of $80,000.