Yield maintenance is a prepayment penalty that is imposed on a borrower who decides to repay a loan before the due date. This penalty is designed to compensate the lender for the loss of income that it would have earned if the borrower had continued to make payments on the loan as originally scheduled. Yield maintenance is often used in the context of commercial real estate loans, where it is common for borrowers to refinance their loans to take advantage of lower interest rates.

Yield maintenance is calculated by determining the present value of the remaining loan payments using the current market interest rate. The lender then subtracts the present value from the original loan amount to arrive at the yield maintenance amount. This penalty is typically expressed as a percentage of the outstanding loan balance, and can be substantial.

Yield maintenance is different from other prepayment penalties in that it is based on the lender's actual loss of income, rather than a fixed percentage of the outstanding loan balance. This makes yield maintenance more difficult to calculate than other prepayment penalties, but also ensures that it accurately reflects the lender's actual loss.

Yield maintenance is often used by lenders to protect themselves against interest rate risk. By including a yield maintenance provision in a loan agreement, lenders can ensure that they will receive a certain minimum amount of income from the loan, regardless of changes in market interest rates. This can make it easier for lenders to manage their overall risk exposure, and can also provide borrowers with greater flexibility in managing their debt.