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Prepayment Tools
Defeasance Calculator
Defeasance is a prepayment structure also found in fixed-rate commercial loans, common with Freddie Mac and CMBS loans, where the borrower replaces the loan’s collateral with securities (e.g., U.S. Treasuries) to match remaining payments, allowing early payoff of the loan without disrupting the cashflow to the underlying bond investor(s).
An interest rate cap limits a borrower’s exposure to rising rates in floating-rate commercial loans by setting a maximum rate, with payouts calculated periodically when the reference rate (e.g., Term SOFR) exceeds the cap’s strike rate. Interest rate caps involve an upfront cost influenced by the strike rate, term, notional value and market appetite. The rate cap provider compensates the borrower for excess interest, ensuring predictable loan payments during the term of the rate cap.
Yield maintenance is a prepayment structure commonly used with fixed-rate commercial loans, paying lenders a present value for unpaid interest if the loan is paid off early. Simply put, this is a present value of remaining interest payments, based on the difference between the loan’s rate and a benchmark (e.g., Treasury yield) for the remaining term. This is typical for agency, bank, Life Co, or CMBS loans.
The Term SOFR forward curves reflect market expectations for future 1-month and 3-month Term SOFR rates, widely used in floating-rate commercial real estate loans. Treasury forward curves show anticipated yields for U.S. Treasury notes across various maturities. Both are derived from observable data like futures, swap rates, and existing Treasury securities. These forward looking curves can aid in forecasting and underwriting fixed- and floating-rate debt but aren’t definitive predictors of future rates.
Arcus Harbor, acting as an advisor to our clients, provides unparalleled service, smart advice, and exclusive access to the best real estate debt solutions in the US.
Arcus Harbor is a unique boutique Real Estate Capital Advisory firm that customers respect and want to be in business with. With a long history of success and a tremendous reputation, the Arcus Harbor team is solely focused on our clients’ needs.
Arcus Harbor Real Estate Capital, LLC (NMLS ID: 2620322) is regulated by the California Department of Financial Protection and Innovation. California loans made or arranged by this entity are pursuant to Arcus Harbor Real Estate Capital, LLC’s California Financing Law license #60DBO-195994.
Arcus Harbor Real Estate Capital Corp (DRE# 02250661) is regulated by the California Department of Real Estate. California loans made or arranged by this entity are pursuant to Arcus Harbor Real Estate Capital Corp’s California DRE license #02250661.
