Summer 2001, Vol 26, No 2

Abstract: Defeasance is an attractive alternative to a yield maintenance formula that provides a clear benefit to the borrower. In short, defeasance does not include a 1 percent minimum prepayment fee while the yield maintenance formula does. The trade-off is a few additional administrative steps necessary to execute a defeasance transaction that are not needed in a straightforward payoff under a yield maintenance scenario. On balance, the potential gain to the borrower far outweighs the costs associated with these additional administrative items.