Multi family Question

[Account Closed]

Hey BP family can anyone explain the meaning of a step down pre payment as well as yield maintenance and how an investor should look at and evaluate both when looking for a Fannie Mae loan or a recourse(bank) loan.

[Ryan Daigle]

Hi @Account Closed those terms refer to penalties that the borrower must pay if they payback the loan before maturity. They're ways the lender can ensure they meet some minimum return on the loan.

When evaluating your financing options, you need to pair your business plan with the type of loan/prepayment. Are you looking to quickly stabilize the property and then sell it? Then a step-down plan that has severe penalties through year 5 wouldn't be a good match.