What is a yield maintenance prepayment penalty?
All of the conduit programs have this type of prepayment penalty because the paper is sold to the bond market and those bond holders have purchased a 10 year bond in which they are paid part of the monthly mortgage payment. Therefore, the yield maintenance prepayment penalty basically is all of the interest payment due on the loan which is what the bond holders bought for that fixed period of time. A more simple way of stating this is that if the borrower wants to refinance the property they will have to pay all of the interest on the mortgage left on the balance of the note to pay off those bond holders. However, a mortgage is assumable for 1% by a new qualified borrower if the currently owner wants to sell the property.
