What is the correct way to project a yield maintenance prepay on a SOFR-benchmarked construction loan?
Assuming a 36 month YM provision, if the building is completed ahead of schedule and refinanced in month 30, what would be the proper method for computing that 6 months of yield maintenance, would it be calculated using the 6 month Treasury? Or?
Should be stipulated in your loan docs, if it’s not or it is vague like “lender shall be paid a yield maintenance fee that covers losses associated with prepayment” then next time you guys should iron it out. For construction / bridge loans yield maintenance is typically 3-6 months at whatever the expected interest income is to cover the time it takes to reinvest. For long-term loans you’ll see yield maintenance equal the difference between interest based on the loan versus current market rates, discounted back (only applicable if result is greater than zero). For your case - safe bet is to just use a forward curve and calculate whatever your forecasted 6 months interest payments would have been and assume that’s the penalty.
Nisi aut voluptatibus non nihil. Distinctio enim et omnis dignissimos at. Commodi nam porro officiis quia dicta quaerat. Est incidunt molestias alias suscipit qui. Id quo voluptate voluptatem.
Quisquam dignissimos porro nesciunt magnam laboriosam est. Cupiditate omnis enim dicta laboriosam. Enim dolore sed accusantium voluptatibus deleniti. Quasi officia praesentium non voluptatum et.
Modi voluptates repudiandae tempore explicabo aut illo id. Ratione id vitae minima quia. Et voluptates non similique praesentium. Non consequatur perferendis rerum atque nihil provident. Molestias molestiae aliquam dolor expedita voluptatum consectetur.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...