Enter your loan amount, maturity date, and treasury rate into the calculator to determine your defeasance cost.

## Defeasance Calculation Formula

The following formula is used to calculate the defeasance cost.

Defeasance Cost = Loan Amount * (1 + Treasury Rate / 100) ^ (Remaining Months / 12)

Variables:

- Defeasance Cost is the cost of defeasing the loan ($)
- Loan Amount is the principal amount of the loan ($)
- Treasury Rate is the interest rate of the treasury securities (%)
- Remaining Months is the number of months left until the loan’s maturity

## What is Defeasance Calculation?

Defeasance calculation refers to the process of determining the cost of defeasing a loan, which involves replacing the collateral of a loan with treasury securities to ensure that the loan obligations are met. This is a common practice in commercial real estate to free up the original collateral for sale or refinancing.

## How to Calculate Defeasance Cost?

The following steps outline how to calculate the defeasance cost using the given formula.

- First, determine the loan amount and the maturity date of the loan.
- Next, determine the current treasury rate applicable.
- Calculate the remaining months until the maturity date.
- Use the formula from above: Defeasance Cost = Loan Amount * (1 + Treasury Rate / 100) ^ (Remaining Months / 12).
- Finally, calculate the defeasance cost by plugging in the values.
- After inserting the variables and calculating the result, check your answer with the calculator above.

**Example Problem:**

Use the following variables as an example problem to test your knowledge.

Loan Amount = $500,000

Maturity Date = 2026-12-31

Treasury Rate = 3%

## FAQ

**1. What is defeasance?**

Defeasance is the process of substituting the collateral of a loan with risk-free securities, usually treasury bonds, to ensure that the loan’s obligations are met.

**2. How is defeasance cost calculated?**

Defeasance cost is calculated by determining the present value of the remaining payments on the loan, discounted at the treasury rate.

**3. Why is defeasance important?**

Defeasance is important because it allows borrowers to release the original collateral securing the loan, enabling the sale or refinancing of the asset.

**4. Can this calculator be used for different loans?**

Yes, you can adjust the loan amount, maturity date, and treasury rate fields to calculate the defeasance cost for different loans.

**5. Is the calculator accurate?**

The calculator provides an estimate of the defeasance cost based on the inputs provided. For exact figures, itâ€™s best to consult a financial advisor or defeasance expert.