Friday, April 13, 2007

Yield Maintenance or Defeasance?

Lenders may give you an option of yield maintenance or defeasance when selecting a loan for a commercial property. The rate of the YM tends to be higher to offset the lender's increased risk of receiving the money back and having to reinvest it. This higher cost does add some flexibility if you decide to sell the building before the 10th year. You need to ask yourself what is more likely in the next few years.

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