Yield Maintenance

Depending on which end of the stick you’re on, you may or may not like yield maintenance.

Let’s break this baby down: when someone takes out a loan (mortgage, car loan, personal loan, and even a bond), the borrower becomes responsible for paying the loan with interest on a schedule of minimum payments.

If you prepay your loan...meaning, if you make extra payments, or larger payments than necessary...then you’ll pay off the loan faster. That means it’s cheaper for you, since you’ll be saving on interest. Cool beans...unless your loan comes with yield maintenance, which would mean the borrower will then be slapped with a “prepayment fee” a.k.a. “yield maintenance.”

"Uh-oh" is right. The yield maintenance allows the lender to collect all that extra interest you thought you were getting out of paying by paying early. Uh...nope.

Good news, though: yield maintenance isn’t allowed on public or private student loans. Phew.