The quick read: Defeasing a CMBS loan costs whatever it takes to buy a portfolio of Treasury securities that reproduces every remaining loan payment, including the balloon, plus the third-party fees to close the swap. Whether that lands above or below your loan balance depends on your coupon against today's Treasury yields. In a labelled illustration on the October 6, 2026 Treasury curve, a $10 million interest-only loan with five years left costs about $9.46 million to defease at a 3.75% coupon and about $10.68 million at 6.50%.
Cost formula: price of the replacement Treasury portfolio plus transaction fees, compared with the loan balance
Main driver: the loan's coupon versus current Treasury yields for the remaining term
5-year Treasury yield, October 6, 2026: 5.03% (FRED series DGS5)
10-year Treasury yield, October 6, 2026: 5.27% (FRED series DGS10)
Earliest defeasance of a loan held in a REMIC: not within 2 years of the startup day (26 CFR 1.860G-2(a)(8))
Borrower notice in a December 2025 conduit prospectus: at least 30 days before the release date
Third-party fee amounts: borrower-paid; no dated public benchmark found, so get a written quote for your loan
This page covers defeasance cost only. For every other way a commercial loan charges you to leave early, see our yield maintenance glossary entry; for a loan that is already near its maturity date, see what to do when a commercial balloon payment is due.
How much does it cost to defease a CMBS loan right now?
The cost to defease a CMBS loan right now is the market price of Treasury securities that pay your remaining scheduled payments, plus fees, and with five-year Treasuries at 5.03% on October 6, 2026, loans written at lower coupons can defease below their balance while loans written above that yield cost more than their balance.
There is no flat fee or posted rate for defeasance. You are not repaying the loan; you are replacing the property as collateral with a bond portfolio that keeps paying the CMBS trust exactly what you owed it. The trust's bondholders see no change, so the price is whatever those bonds cost on the day you buy them.
That makes the answer a calculation, not a quote. The inputs are your remaining payment schedule, the date your open period begins, and the Treasury curve on the purchase date. Fees for the accountant, counsel, servicer and successor borrower are added on top, and they are paid in cash whether the portfolio comes in above or below the loan balance.
A dated reminder that the direction can flip: Commercial Observer reported on May 24, 2022 that a $46 million loan on a Las Vegas retail center defeased in February 2022 at a total cost of more than $48 million, about 5% above the outstanding balance. The example illustrates a premium above the loan balance; it is not a benchmark for your loan, whose remaining payments and securities purchase date determine the cost.
How is the defeasance price calculated?
The defeasance price is calculated by discounting each remaining loan payment, including the balloon, at the Treasury yield for its payment date and adding the results, because a bond portfolio bought at those yields will throw off exactly that cash on schedule. The sum is the deposit; fees come on top.
Here is a labelled illustration, not a quote. Assume a $10,000,000 interest-only loan with 60 monthly payments left and the balloon at month 60. Each payment is discounted on the October 6, 2026 Treasury curve from FRED: 4.46% at 1 year, 4.79% at 2 years, 4.88% at 3 years and 5.03% at 5 years, with straight-line interpolation between those points, the 1-year yield for payments due within the first year, and semiannual compounding. Real portfolios are built from specific bonds and strips, so a live price will differ.
| Illustrative loan coupon | Portfolio cost (Oct 6, 2026 curve) | Versus $10,000,000 balance |
|---|---|---|
| 3.75% | about $9,464,000 | about $536,000 below |
| 5.03% | about $10,031,000 | about $31,000 above |
| 6.50% | about $10,683,000 | about $683,000 above |
Two adjustments move a real number. First, the prospectus terms below size the portfolio to the maturity date or, where the loan documents provide, only to the first day of the open period; in that case the last few payments drop out and the balloon is paid earlier. Second, an amortizing loan has smaller interest payments over time, which changes the weighting but not the logic. Fees are excluded from every row.
Why does your coupon versus Treasury yields decide the cost?
Your coupon versus Treasury yields decides the cost because the portfolio must earn your coupon while it is priced at Treasury yields; when Treasuries yield more than your loan rate, fewer dollars of bonds produce the required payments, and when they yield less, you need more dollars of bonds than you borrowed.
The loan's actual coupon and remaining payment schedule decide which side of the line it sits on; its origination year alone does not. Compare each payment with the Treasury yield for its remaining term rather than assume that an older loan is cheap to defease or that every coupon above 5% produces a premium.
Time left matters too. The further a coupon sits from current yields, and the more payments that remain, the larger the gap in either direction. A loan a few months from its open period has little left to replace, so the cost converges on the balance regardless of the rate.
The practical read: run the number against the current curve before you decide whether to sell, refinance or wait. A cost below the balance means the cash needed to release the lien is less than the principal you would repay in a payoff; a cost above it is a premium your refinance or sale proceeds must cover.
What fees sit on top of the Treasury portfolio?
The fees on top of the Treasury portfolio are third-party transaction costs that the borrower pays in cash, typically covering an accountant's sufficiency certification, legal opinions, servicer processing, the successor borrower, custody of the securities, and rating agency confirmation where the loan documents require it.
Commercial Observer's May 24, 2022 report listed the usual categories as accounting fees, consulting fees, legal review or rating agency confirmation costs, custodial fees for the collateral securities, servicer processing costs and successor borrower costs. It did not publish a fee schedule, and we found no dated public benchmark for the dollar amounts, so treat any number you hear as a quote for your loan.
The December 17, 2025 conduit prospectus we read sets the obligations out in the mortgage loan representations. The borrower must provide a certification from an independent certified public accountant that the collateral covers all scheduled payments, an opinion of counsel on the trustee's perfected security interest, and pay rating agency fees where confirmation is a condition, plus all other reasonable expenses including accountant's fees and opinions of counsel.
The same prospectus says the master servicer buys the government securities at the borrower's expense, and any deposit beyond the amount needed to buy them goes back to the borrower or another designated party. Where a loan permits partial defeasance to release one property, the collateral must cover scheduled payments on a principal amount of at least the lesser of 110% of that property's allocated loan amount or the outstanding loan balance.
How does defeasance compare with yield maintenance, step-down and open periods?
Defeasance compares with the other CMBS exits as the one that leaves the loan outstanding: yield maintenance and percentage penalties retire the loan for a cash charge, an open period lets you prepay at par, and defeasance substitutes bonds for the property so the trust's cash flow never changes.
The December 17, 2025 prospectus for a 30-loan conduit pool shows how these mechanisms are mixed. Its prepayment strings combine lockout (L), defeasance (D), yield maintenance (YM), "D or YM" choices and open periods (O), and 25 of the 30 loans, 78.4% of the pool balance, permit defeasance.
| Exit route | How the cost is set | What the Dec 17, 2025 conduit prospectus shows |
|---|---|---|
| Defeasance | Price of government securities replicating remaining payments, plus fees | 25 of 30 loans (78.4% of pool balance) permit it, generally after a lockout of at least two years from closing |
| Yield maintenance | Cash charge for the lost interest, sometimes with a minimum percentage of the amount prepaid | Strings such as L,YM1,O mean the greater of yield maintenance or 1% of the amount prepaid |
| Percentage or step-down penalty | A set percentage of the amount prepaid; a step-down lowers the percentage on a schedule | The prospectus defines a "% Penalty" period; none of the 30 loans' prepayment strings uses one |
| Open period | No prepayment charge | All 30 loans list one before maturity: 3 to 7 payments, and 19 loans (64.9% of balance) open for 7 |
| Lockout | Prepayment not permitted | The most common string, L,D,O, covers 20 loans (48.2% of balance) |
Bank, credit union, life company and debt fund loans write their own prepayment terms loan by loan, so check the note rather than assume a CMBS structure. Our CMBS glossary entry covers how the trust and servicers fit together.
Who is involved and how much notice does the servicer need?
A CMBS defeasance involves the borrower, the master servicer acting for the trust, a successor borrower that assumes the defeased loan, an independent accountant, counsel on both sides, a securities purchaser or custodian, and sometimes the rating agencies, and one 2025 prospectus requires at least 30 days' written notice before the release date.
The successor borrower is the piece borrowers miss. In the 2025 prospectus, a successor borrower established, designated or approved by the master servicer generally assumes the loan, and the original borrower is relieved of its obligations; some loans let the borrower designate the successor instead. The bonds then sit with that entity until they pay off the loan.
Timing is set by federal tax law as well as the loan documents. Under 26 CFR 1.860G-2(a)(8), a REMIC may release its lien in a defeasance only if the substitute collateral is government securities, the mortgage documents allow the substitution, the release facilitates a sale or other customary commercial transaction, and the release is not within 2 years of the startup day.
Work backwards from your closing date. The notice period, the accountant's verification, the opinion letters and any rating agency step all have to land before the release date, and the purchase price is fixed only when the securities are bought, so the cost can move between your first estimate and closing.
When does defeasance make sense, and when should you wait?
Defeasance makes sense when a sale or refinance is worth more than the remaining defeasance premium, or when the portfolio prices below your balance, and waiting makes sense when your open period is close or when Treasury yields sit well below your coupon and a short delay shrinks the payments left to replace.
Start with three numbers: the illustrative portfolio cost on today's curve, a written fee quote, and the date your open period begins. If the open period is a few months away, the remaining payments to replace are few, and waiting may cost less than defeasing now.
Then compare the total against what the exit earns. A sale at a strong price, a refinance into more proceeds, or a move off a loan whose cash management terms are squeezing operations can each justify a premium. A cost below the balance strengthens the case to act, because less cash is needed to release the lien than to repay the principal.
Finally, size the new loan to cover the exit. A refinance has to fund the defeasance deposit and fees, not just the old balance, and a lender will underwrite the new loan on the property's current income and value.
Refinancing out of a CMBS loan?
If you are refinancing out of a CMBS loan, the new lender has to fund the defeasance deposit and fees as well as your equity goals, so bring the payment schedule, open period date and a current defeasance estimate when you ask for terms; lenders then size the new loan against the property's current income.
YieldStack is a commercial mortgage brokerage, not a lender. It costs Zero upfront to submit a deal and review offers; YieldStack's broker fee is 0.50–1.00% of the loan amount and is paid only at closing. Every credit decision is made by the lender; YieldStack arranges the introductions and negotiates on the borrower's side, and no loan, rate, or closing is guaranteed.
Share the loan, the property and the exit date, and see which lenders will refinance it: start a pre-submission.
The bottom line
Defeasing a CMBS loan costs the price of Treasuries that replace your remaining payments to maturity or the open period, plus fees. With the 5-year Treasury at 5.03% on October 6, 2026, older low-coupon loans can defease below their balance and newer high-coupon loans above it. Run the number on the current curve, get a written fee quote, and check the 2-year REMIC rule and your notice period before you set a closing date.