Question

For most mortgage loans on commercial real estate, the right of prepayment is constrained through a prepayment penalty. Which of the following types of prepayment penalties requires a borrower to provide the lender with some combination of U.S. Treasury securities that will serve to replace the cash flows of the loan being paid off?

A. Yield-maintenance prepayment penalties
B. Prepayment lockout
C. Defeasance prepayment penalty
D. Curtailment penalty

Answer 1

C. Defeasance prepayment penalty

Step-by-step explanation:

In defeasance prepayment penalty, the borrower wishing to prepay must usually offer the lender some combination of U. S. Treasury securities that replace the cash flows of the loan being paid off.