Yield Maintenance

Yield maintenance is a financial concept primarily used in bond markets and real estate lending. It refers to a prepayment penalty that lenders impose on borrowers if they pay off a loan early. This penalty ensures that lenders receive a return on their investment that matches what they would have earned had the loan remained in place until maturity. Essentially, it protects the lender's expected yield, or profit, by compensating for the lost interest income if a borrower decides to refinance or pay off the loan ahead of schedule.