Prepayment Penalties for Freddie Mac Small Balance Loans
Like most types of commercial and multifamily financing, Freddie Mac Optigo Small Balance Loans require borrowers to pay a penalty if they want to pay off their loan before the term is up. Fortunately for borrowers, the SBL program offers a variety of options when it comes to prepayment penalties.
Specifically, Freddie Mac offers yield maintenance and several step down prepayment penalty options. Yield maintenance compensates Freddie Mac (or, technically, the investors, once the loan has been securitized) for all the interest payments they’ll be missing out on as a result of the prepayment of the loan. In contrast, step down prepayment penalties are penalties based on a percentage of the remaining unpaid principal balance of a loan, and decrease, or “step down,” each year, as the loan reaches maturity. Below, we detail the exact prepayment penalties for the Freddie Mac SBL program:
Fixed Rate Loans:
- 5-Year
- Option 1: 54321
- Option 2: 321(3)
- Option 3: (Yield Maintenance or 1%)
- Option 4: 310(3)
- 7-Year
- Option 1: 5544321
- Option 2: 3(2)2(2)1(3)
- Option 3: (Yield Maintenance or 1%)
- Option 4: N/A
- 10-Year
- Option 1: 5544332211
- Option 2: 3(3)2(3)1(4)
- Option 3: (Yield Maintenance or 1%)
- Option 4: N/A
Hybrid ARM Loans:
- 5 + 15 Year
- Option 1: 54321, 1%
- Option 2: 321(3), 1%
- Option 3: (Yield Maintenance or 1%) + 1%, 1%
- Option 4: 310(3), 0%
- 7 + 13 Year
- Option 1: 5544321, 1%
- Option 2: 3(2)2(2)1(3), 1%
- Option 3:(Yield Maintenance or 1%) + 1%, 1%
- Option 4: N/A
- 10 + 10 Year
- Option 1: 5544332211, 1%
- Option 2: 3(3)2(3)1(4), 1%
- Option 3: (Yield Maintenance or 1%) + 1%, 1%
- Option 4: N/A
While this information provides a basic look at Freddie Mac SBL prepayment guidelines, it’s important to understand that there are several additional rules that govern prepayment penalties. For instance, the “Option 4” for 5-year fixed and hybrid ARM loans is only available for loans financing properties in Top Markets. And, in addition, borrowers paying yield maintenance may need to pay additional fees, depending on the exact circumstances.