The number on every quote comparison
Fixed-rate quotes are being compared on rate, and the rate is being driven by the ten-year Treasury. It closed at 5.19 percent on 14 October, after a five-year high of 5.29 percent on 30 September (Federal Reserve H.15; FRED DGS10). At the start of the month, 24/7 Wall St calculated that the ten-year sat in the 99.7th percentile of its five-year range (24/7 Wall St, 3 Oct 2026). The Federal Reserve raised its target range to 3.75 to 4.00 percent in September (Bisnow, 2 Oct 2026).
Nobody knows where rates go next. That is exactly the point. When the benchmark is near the top of its range, the scenario where rates are meaningfully lower in two or three years is a live possibility, and the clause that decides whether you can act on it is sitting a few pages behind the rate.
The three exits you will be offered
Fixed-rate commercial loans almost always restrict early repayment, because the lender funded a fixed stream of interest and wants it protected. The protection comes in three common forms:
| Structure | What you pay to leave early | What drives the cost |
|---|---|---|
| Step-down (e.g. 5-4-3-2-1) | A fixed percentage of the balance that falls each year, then nothing | The calendar only |
| Yield maintenance | The present value of the interest the lender loses, usually with a minimum such as 1 percent | Your note rate vs the Treasury yield on the day you prepay |
| Defeasance | The cost of a portfolio of government securities that replaces your remaining payments, plus fees | The same: your note rate vs Treasury yields |
Step-down cost is known on the day you sign. Yield maintenance and defeasance costs are unknown until the day you leave, and they move against you in exactly the situation you would want to leave in: when rates have fallen. We explain the mechanics in depth in what defeasance is and how it works.
The worked example: same loan, same rate drop, two clauses
The example below is illustrative. The spread, the rate path and the penalty formula are assumptions chosen to show the arithmetic, not a quote.
The loan: $10,000,000, 10-year term, 30-year amortization, fixed at 7.19 percent (the 14 October ten-year of 5.19 percent plus a 2.00 percent spread). Monthly payment: $67,811.
The scenario: three years in, the balance is $9,683,872 and the Treasury matching the remaining seven years has fallen 100 basis points, to 4.19 percent. A new loan at the same spread would price at 6.19 percent.
What refinancing is worth: at 6.19 percent on the same remaining amortization, the payment drops to $61,580. That is $74,779 a year of debt service saved, about $424,000 in present value over the remaining seven years.
What it costs to leave:
| Prepayment clause | Cost to prepay in year 4 | Net result of refinancing |
|---|---|---|
| Step-down 5-4-3-2-1 (2% in year 4) | $193,677 | Refinance pays back in about 2.6 years |
| Yield maintenance (Treasury flat, 1% minimum) | $1,677,013, 17.3% of the balance | Refinancing loses money. You stay. |
The yield maintenance figure discounts the gap between the 7.19 percent note rate and the 4.19 percent Treasury, on the scheduled balance, over the 84 remaining months, at the Treasury rate. That is a common formula, often called "Treasury flat." Your loan documents may use a different one, so ask for the exact clause.
The asymmetry runs the other way too. If rates instead rise 100 basis points, the same yield maintenance falls to about $524,000 (5.4 percent), and at rates high enough it would hit its 1 percent minimum, while the step-down still charges its fixed 2 percent. Yield maintenance is cheapest to leave when you are least likely to want to.
Why the coupon comparison misleads you
Put two quotes side by side: 7.15 percent with yield maintenance, and 7.30 percent with a step-down. On a rate-only comparison, the first one wins by 15 basis points, about $15,000 a year on $10 million.
In our scenario, the second loan lets you capture $75,000 a year of savings for a one-time $194,000. The first locks you into the higher payment for seven more years or charges you $1.68 million to escape. The rate told you which loan was cheaper if nothing changes. The clause told you which loan was cheaper if anything does.
There is no universally right answer. Yield maintenance is standard on CMBS, agency and much life company debt, and it often comes with the tightest pricing and the longest terms. If you are certain you will hold to maturity, or you can assume the loan on a sale, the clause may never matter. But that should be a decision, not a default.
What to ask every lender this week
- What is the prepayment structure, in writing, with the formula? "Yield maintenance" is not one thing. Treasury flat, Treasury plus a spread, and the minimum all change the number.
- What would you charge for a step-down instead? Ask for the rate difference and judge it against your hold plan.
- When does it open? Many loans are open to prepayment for the final three to six months. Some are open sooner.
- Is the loan assumable on a sale? If a buyer can take over the loan, the prepayment clause may never be triggered.
- Can I partially prepay or release a property? On portfolios this matters more than the coupon.
Then compare quotes on all of it. A side-by-side that shows rate, proceeds, structure and the way out is the only comparison that holds up when the market moves. Check the current commercial loan rates, with their dates, before you model any of it. The guarantee behind the loan changes the math too, which we cover in recourse vs non-recourse financing.
The question to ask before you sign
Not "who has the lowest rate?" Ask: "if rates are a point lower in three years, what does it cost me to act on it?" The first question picks a lender. The second decides whether the next three years are a choice you still get to make.
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FAQ
What is the difference between yield maintenance and a step-down prepayment penalty? A step-down charges a fixed percentage of the balance that falls each year, such as 5-4-3-2-1. Yield maintenance charges the present value of the interest the lender loses, so it depends on your note rate versus Treasury yields on the day you prepay.
When is yield maintenance most expensive? When Treasury yields have fallen below your note rate, which is the same situation in which refinancing would save you money. When yields rise, yield maintenance shrinks, often to a 1 percent minimum.
How much does yield maintenance cost? It depends on the formula, the remaining term and the rate gap. In our illustrative $10 million example, prepaying in year four after a 100 basis point Treasury decline cost $1.68 million, 17.3 percent of the balance.
Is a step-down prepayment always better? No. Step-downs are known in advance and cheaper if rates fall, but they may carry a higher rate, and they still charge their fixed percentage if rates rise. The right choice depends on how long you expect to hold the loan.
What is the 10-year Treasury yield in October 2026? It closed at 5.19 percent on 14 October 2026, after a five-year high of 5.29 percent on 30 September, according to the Federal Reserve's H.15 data.