Yield maintenance prepayment penalty

Before entering a loan agreement, make sure you understand what those penalties are, and balance them against your plans for the property.
Yield maintenance is the most common prepayment penalty for non-recourse loans. It can also be the costliest. Imagine that you financed a $1 million loan at 5% with the term of 10 years. For simplicity, will pretend that the loan is interest only. The payment on the loan will be $50,000 per year.
Two years later, you decide to sell the building. You think this is a no-brainer because it has now appreciated by $500,000. You plan to take that money, plus your original, down payment, and buy a much larger building. You are thrilled that interest rates have now plunged to 3%, so your ROI on the new building will be better. But you didn’t factor in the prepayment penalty. How much would you owe for yield maintenance?
Yield maintenance protect the bank from these situations. If the interest rates go down, you’ll owe the bank what it would have made for the duration of the loan
In this case, the interest rates went down from 5% to 3% so the difference is 2%. You have eight years remaining on the loan so you will owe $160,000
Yup. Of your $500k profit, $160k would go to the bank. Of course if rates go up then your yield maintenance is zero.
More in my book Real Estate Investing Nothing Held Back. Ch11