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Meet Bill Rapp

NMLS ID # NMLS # 228246

William Rapp, based in Houston, TX, US, is currently a Capital Advisor at Medallion Funds, bringing experience from previous roles at eXp Commercial, NEXA Mortgage, Viking Enterprise LLC and Sun Realty - Houston. William Rapp holds a 1997 - 2001 BBA in Finance @ Texas A&M University. With a robust skill set that includes REO, Sellers, SFR, FHA financing, Reverse Mortgages and more, William Rapp contributes valuable insights to the industry.

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Great experience purchasing our first home! Bill was easy to reach and always able to answer any questions or concerns.

27185 Astoria Brook Ln, Katy, TX 77494, USA

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📉 Mortgage Prepayment Penalties: How Yield Maintenance & Defeasance Impact Investors 🧾

💸 Understanding Prepayment Penalties: Yield Maintenance vs. Defeasance Explained 🏦

Bill Rapp, Commercial Mortgage Broker

August 21, 2025•2 min read

💸 Understanding Prepayment Penalties: Yield Maintenance vs. Defeasance Explained 🏦

📉 Mortgage Prepayment Penalties: How Yield Maintenance & Defeasance Impact Investors 🧾

Understanding Prepayment Penalties: Yield Maintenance & Defeasance

When investors or borrowers consider refinancing or paying off a commercial loan early, prepayment penalties often come into play. These penalties protect lenders against lost interest revenue, but for borrowers, they can be confusing and expensive if not fully understood. Two of the most common prepayment structures in commercial real estate lending are Yield Maintenance and Defeasance.

🔑 What Are Prepayment Penalties?

Prepayment penalties are fees charged when a borrower pays off a loan before the maturity date. They ensure lenders still receive the financial return they expected when issuing the loan.

📊 Yield Maintenance Explained

Yield Maintenance is designed to make the lender “whole” if the loan is paid off early. The borrower must pay the difference between the interest rate on the loan and the yield on a comparable U.S. Treasury security, multiplied by the remaining balance and time left on the loan.

· ✅ Advantage: Simple to calculate and predictable.

· ❌ Drawback: Can be very expensive, especially in low-rate environments.

🏛️ Defeasance Explained

Defeasance is a more complex process where the borrower replaces the loan collateral with U.S. Treasury securities that replicate the loan’s cash flow until maturity.

· ✅ Advantage: Frees the property from the lien, allowing for a sale or refinancing.

· ❌ Drawback: Complex, costly, and requires third-party services.

⚖️ Yield Maintenance vs. Defeasance

· Yield Maintenance: Easier, straightforward, but potentially very costly.

· Defeasance: Complex and expensive but provides property flexibility.

🏠 Why This Matters for Investors & Borrowers

Understanding these penalties can save you hundreds of thousands of dollars. Whether you’re refinancing, selling, or considering a cash-out, your exit strategy should account for prepayment terms. A mortgage broker can help you analyze your options and avoid unnecessary costs.

👉 At Medallion Funds, we guide borrowers through these complexities, ensuring they make the most cost-effective decision when planning refinancing or property sales.

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Bill Rapp - Commercial & Residential Mortgage Broker

Whether you're a first-time homebuyer, a seasoned investor, or a business owner with ambitious plans, securing the right financing is crucial. At Medallion Funds, we take the guesswork out of mortgages, offering a comprehensive suite of residential and commercial loan options to fit your unique needs. Looking for Your Dream Home? We understand the excitement and challenges of navigating the residential real estate market. Our experienced mortgage brokers will guide you through every step, from pre-qualification to closing. We offer a variety of loan programs to suit your financial situation, including: • Fixed-rate mortgages: Offering stability with predictable monthly payments. • Adjustable-rate mortgages (ARMs): Providing competitive rates for a set period. • FHA loans: Making homeownership accessible with lower down payments. • VA loans: Rewarding veterans with attractive rates and flexible terms. Investing in Your Business Future? Growth often requires capital, and we can help you unlock the potential of your commercial property. Our brokers specialize in a wide range of commercial loan options, including: • Purchase loans: Financing the acquisition of new buildings or land. • Construction loans: Facilitating the development of your project. • Refinance loans: Restructuring your existing mortgage for better terms. • SBA loans: Providing access to government-backed financing for qualified businesses. The Medallion Funds Difference: We go beyond simply finding a loan. We take the time to understand your goals and develop a personalized strategy. Here's what sets us apart: • Expertise: Our brokers have a deep understanding of both residential and commercial lending. • Competitive Rates: We leverage our strong lender relationships to secure the best possible terms. • Streamlined Process: We handle the paperwork, keeping you informed every step of the way. • Exceptional Service: We're committed to providing you with a positive and stress-free experience. Ready to Take the First Step? Contact Medallion Funds today for a free consultation. Let's discuss your financing needs and help you achieve your dreams!

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