Yield Maintenance
What is 'Yield Maintenance'
A prepayment premium that allows investors to attain the same yield as if the borrower made all scheduled mortgage payments until maturity.
Explaining 'Yield Maintenance'
Yield maintenance premiums are designed to make investors indifferent to prepayment. Furthermore, It also makes refinancing unattractive and uneconomical to borrowers.
Further Reading
Commercial Mortgage Prepayment: Prepayment Fee, Yield Maintenance, or Defeasance
www.aresjournals.org [PDF]
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www.aresjournals.org [PDF]
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escholarship.org [PDF]
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www.tandfonline.com [PDF]
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www.sciencedirect.com [PDF]
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link.springer.com [PDF]
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trid.trb.org [PDF]
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papers.ssrn.com [PDF]
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www.tandfonline.com [PDF]
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onlinelibrary.wiley.com [PDF]
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Q&A About Yield Maintenance
Who gave yield management its name?
Robert Crandall, former Chairman and CEO of American Airlines, gave yield management its name. He called it "the single most important technical development in transportation management since we entered deregulation."
Is there any other way that a yield maintenance premium can be used?
Yes, it can also be used in conjunction with an interest rate cap or floor. This helps protect against rising rates of interest by capping them at a certain level while still allowing for some growth in rates over time.
What is yield management?
Yield management is a strategy that involves understanding and anticipating consumer behavior in order to maximize revenue or profits from a fixed, time-limited resource.
Can you use a Yield Maintenance Premium without an Interest Rate Cap or Floor?
No, you cannot use a Yield Maintenance Premium without an Interest Rate Cap or Floor.
What is a yield maintenance premium?
A yield maintenance premium allows investors to attain the same yield as if the borrower made all scheduled mortgage payments until maturity.
How does a yield maintenance premium make refinancing unattractive and uneconomical to borrowers?
It makes refinancing unattractive and uneconomical to borrowers because it makes them pay more for their new loan than they would have paid on their old one.
How does yield management work?
Yield Management works by analyzing historical data on sales and inventory levels over time to determine how much inventory should be purchased based on expected demand for products or services. The goal is to have enough stock available so that consumers are not left wanting but not so much as to have an excess of unsold items.
What does yield management involve?
It involves strategic control of inventory to sell the right product to the right customer at the right time for the right price. This process can result in price discrimination, where customers consuming identical goods or services are charged different prices.
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