The Yield Maintenance Calculator is a valuable tool used in finance to determine the yield maintenance amount on a loan when it is prepaid before the end of its term. This calculation helps borrowers and lenders understand the financial implications of early loan repayment.
Formula of Yield Maintenance Calculator
The formula for calculating yield maintenance is straightforward:
Yield Maintenance = (Remaining Principal Balance) * (Yield Maintenance Percentage)
Where:
- Remaining Principal Balance is the outstanding principal balance of the loan at the time of prepayment.
- Yield Maintenance Percentage is the agreed-upon percentage determined in the loan agreement. It’s typically calculated as the difference between the interest rate on the loan and the current market interest rate, multiplied by the remaining loan term expressed in years.
General Terms
Below is a table of general terms related to loan prepayment and yield maintenance, which can be helpful for users to understand without having to calculate each time:
| Term | Definition |
|---|---|
| Prepayment Penalty | A fee charged by lenders for paying off a loan before its scheduled term. |
| Remaining Loan Term | The period of time left until the loan’s maturity date. |
| Market Interest Rate | The prevailing interest rate in the financial market at a given time. |
| Principal Balance | The original amount of money borrowed, excluding interest. |
Example of Yield Maintenance Calculator
Let’s consider an example to illustrate the calculation of yield maintenance:
Suppose a borrower has a remaining principal balance of $100,000 on a loan, and the agreed-upon yield maintenance percentage is 3%. If the borrower decides to prepay the loan, the yield maintenance amount would be:
Yield Maintenance = $100,000 * 3% = $3,000
So, the borrower would need to pay a yield maintenance amount of $3,000 in addition to the remaining principal balance to fully repay the loan.
Most Common FAQs
Yield Maintenance is a financial concept use in loan agreements to compensate lenders for the loss of interest income when a borrower prepays a loan before its scheduled maturity date.
Yield Maintenance is calculate using a formula that considers the remaining principal balance of the loan. The agreed-upon yield maintenance percentage stated in the loan agreement.
Lenders charge yield maintenance to ensure they receive the full amount of interest income they would have earned if the borrower had not prepaid the loan early. This helps protect the lender’s financial interests and maintain the expected return on investment.