What Is Yield Maintenance?

Yield maintenance is a type of prepayment penalty that allows investors to get the same yield as if the borrower made all of the scheduled interest payments until the maturity date. Borrowers must pay the rate difference between the loan interest rate and the current market interest rate on the prepaid capital for the remaining term of the loan.
The purpose of yield maintenance premiums is to make investors unconcerned about prepayment (the settlement of a debt or installment loan before its official due date). Furthermore, it makes refinancing less appealing and cost-effective for borrowers.