Lockouts in Commercial Real Estate

What is a "Lockout" as it Relates to Commercial Mortgages?

A lockout is a restriction within the commercial real estate loan to prevent prepayment of the loan. If the loan is paid early then the lender will not benefit from the anticipated yield of the loan. For this reason, some commercial real estate loans have a lockout period, which is the minimum number of years in which the borrower cannot pay off the entire loan.

A lockout is a penalty that can easily be overlooked because it isn't immediate. When evaluating an agreement, it is important to weigh the costs of a lockout period, since it may become an important cost factor in the future.

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