What is CMBS defeasance?

Defeasance is a CMBS prepayment mechanism where the borrower substitutes U.S. Treasury securities for the remaining loan principal + interest cash flows. The substituted Treasuries are deposited into a defeasance trust that takes over making the scheduled debt service payments to the CMBS bondholders. The borrower's lien on the property is released. Typical lockout 24-48 months from origination, then defeasance allowed years 3-9 of a 10-year term, then open prepay last 3-6 months.

Why is defeasance expensive at low interest rates?

Counter-intuitive but critical: defeasance is MOST expensive when current Treasury rates are BELOW the original CMBS coupon. To replicate the high-coupon cash flows with low-yielding Treasuries, you have to buy MORE Treasuries (or higher-priced ones). The premium can be 5-15% of the loan balance on a deeply in-the-money loan. When current rates are above the locked coupon, defeasance is cheap or even discountable.

What's the difference between defeasance and yield maintenance?

Both lock in the bondholders' yield. Defeasance: substitute Treasuries for the cash flows; borrower pays the cost of the Treasury substitution; lien released, property unencumbered. Yield maintenance: pay present-value of remaining interest + principal cash flows discounted at current Treasury yield (usually + 25-50 bps spread). Defeasance involves more legal mechanics (defeasance trust, custodian, accountant cert) but usually slightly cheaper. Yield maintenance is operationally simpler but slightly more expensive.

How is defeasance cost calculated?

Defeasance cost ≈ present value of remaining debt service cash flows discounted at current Treasury yield (matched maturity), plus 0.5-1.0% defeasance trust + legal + accountant fees. Worked simplified example: $20M loan, 6.0% coupon, 5 years remaining, current 5-year Treasury 4.0%. The $1.2M annual interest + $20M balloon needs to be replicated with 4.0% Treasuries, meaning you need ~$22.5M of Treasuries to fund the higher-coupon cash flows. Defeasance cost ~$2.5M PLUS legal + trust fees ~$200K-$300K.

When is the open prepay window in CMBS?

Standard 10-year CMBS: lockout months 1-24 (no prepay allowed), defeasance/yield-maintenance window months 25-114 (or years 3-9.5), open prepay last 3-6 months (months 115-120). The exact window varies by loan agreement. Open prepay = pay off at par with no penalty. The narrow 3-6 month open window is one reason CMBS borrowers plan refinances 12+ months ahead.

Should I defease or wait for open prepay?

Decision depends on: (1) defeasance cost vs. carry cost of waiting, (2) opportunity cost of capital tied up in the property, (3) replacement financing rate environment. Worked example: 5-yr remaining loan, defeasance cost $2M, replacement loan saves 100 bps. On $20M balance: 100 bps = $200K/yr × 5 yr = $1M opportunity savings. Defeasance saves $1M but costs $2M = net $1M cost to defease early. Wait for open prepay window. Reverse if rate spread is wider or loan balance bigger.

CMBS Defeasance Calculator | Free Tool

Your Loan

Remaining Loan Balance

CMBS Coupon Rate (%)

Years Remaining on TermCurrent Treasury Yield (Matched Maturity, %)

Defeasance Trust + Legal + Accountant Fees

Typical legal + trust + accountant fees: $150K-$400K depending on loan size + complexity. Add 0.5-1.0% of loan balance for full all-in cost estimate.

Defeasance Estimate

Treasury Substitution Cost (PV)

$21.59M

PV of remaining cash flows at 4.20% Treasury

Defeasance Premium (vs. Loan Balance)

$1.59M

Coupon (6.0%) > Treasury (4.20%), premium reflects rate gap

Total Defeasance Cost (incl. fees)

$21.84M

Treasury cost + legal/trust/accountant fees

Yield Maintenance (rough estimate)

$21.77M

~5% premium over defeasance + lower legal cost

Wait For Open Prepay (carry cost)

$26.00M

Total interest + balloon if paying through scheduled term

About these figures

Rate, spread, leverage and term levels shown here are indicative. They reflect general conditions across our lender network as of July 21, 2026 and describe what the market has recently supported, not an outcome available to any specific borrower.

Actual pricing, leverage and terms are determined by the lender through underwriting, once full transaction materials have been reviewed. Nothing shown here is a quote, a commitment, an offer of credit or a guarantee.

PeerSense is a commercial lending advisory. We do not lend, we do not fund and we do not set pricing. Every credit decision belongs to the lender.

Market conditions move. Figures may change without notice, and a level that cleared last quarter may not clear today. What these terms mean.

Read CMBS Defeasance Explained →

Indicative only. Actual defeasance requires accountant cert + custodian + matched-Treasury portfolio. Consult CMBS counsel before commitment.

Your Defeasance Cost Result Is Ready

Want help executing the defeasance, or a refi quote that beats the YM cost?

We'll run two parallel paths: a defeasance partner from our network OR a refi takeout that retires the loan without YM penalty.

CMBS Defeasance: Response within 24–48 hours. No obligation.

How big is your deal?

Where are you in the deal?

Equity or down payment ready

Credit score

Timeline to close

By checking this box and submitting my information, I electronically sign and agree that PeerSense, Inc. and its affiliates, funding partners, and franchise partners may contact me at the email address and phone number I provided, including by phone call, SMS/text message (including autodialed, prerecorded, or artificial-voice messages), and email, for marketing, franchise research, and funding-related purposes, even if that number is on any Do Not Call list. Message and data rates may apply. Consent is not a condition of purchase. I may opt out at any time by replying STOP to texts or emailing info@peersense.com. I have read and agree to the Privacy Policy and Terms of Service.

Referral fee realized at closing · Or call (317) 452-6990

Why Defeasance Costs More When Rates Are Low

Counter-intuitive truth: low Treasury yields make defeasance MORE expensive. The defeasance trust must replicate the original loan's high-coupon cash flows using current low-yielding Treasuries. To produce the same dollar cash flows from lower-yielding paper, you need MORE Treasuries, and the premium grows as the rate gap widens.

Worked simplified math: $20M loan at 6.0% coupon, 5 years remaining. Annual interest $1.2M + $20M balloon at year 5. To replicate with 4.20% Treasuries, you need PV = $1.2M × annuity(5yr, 4.20%) + $20M × DF(5yr, 4.20%) ≈ $5.32M + $16.30M = $21.62M. **Defeasance premium ~$1.62M** before legal fees. Add $250K legal/trust/accountant ~ $1.87M total cost on the $20M loan = 9.4% defeasance cost.

Reverse the rates (locked at 4.0%, current 6.0%) and the defeasance is essentially free or even discountable, but no one defeases out of a low-coupon loan into higher-rate replacement debt.

When to Defease vs. Wait for Open Prepay

Decision factors: (1) defeasance cost as % of balance, (2) opportunity cost of capital tied up in the property until open prepay window, (3) rate environment if defeasing into replacement debt. Rule of thumb: if defeasance cost > 8% of balance + you're within 12-18 months of open prepay, wait. If < 5% + replacement opportunity is compelling, defease.

Need actual defeasance pricing?

PeerSense coordinates with defeasance consultants + custodians + accountants for actual transaction-specific pricing. Indicative-only quote → live-quote pricing typically delivered within 5 business days.

CMBS Loans Overview