In one sentence
A prepayment penalty that declines over time, such as 5% in year one falling by a point each year.
The longer version
Step-down structures make early payoff progressively cheaper, giving borrowers a predictable path to prepay. A 5-4-3-2-1 structure charges 5% in year one down to 1% in year five.
Step-downs are simpler than yield maintenance or defeasance, and common on balance-sheet loans where the lender wants prepayment protection without complexity.
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