Skip to Content

Step-Down Prepayment Penalty

Step-down prepayment penalty is a form of prepayment penalty often applied on commercial mortgages.

To mitigate potential loss of revenue, commercial mortgage lenders include a step-down clause in the mortgage contract. Generally, this is a straightforward calculation based on the remaining balance. It is called a “step-down” penalty because the amount gets smaller the longer the loan is in place.

For example, a step-down scenario can have 5% of the outstanding balance being the prepayment penalty owed in the first year, 4% in the second year, 3% in the third year, and so forth.

Stem Lending, Inc. has wholesale commercial lender partners. Feel free to contact us or call (833) 600-0490 if you are exploring commercial loans.

« Back to Glossary Index