What are typical DSCR loan terms?
DSCR loan terms vary by program, but they are generally structured to support long-term real estate investment strategies.
Typical DSCR loan terms may include:
30-year terms (most common)
40-year terms in some programs
Interest-only periods, depending on the deal
Loan terms are not one-size-fits-all. Factors such as DSCR, loan-to-value (LTV), credit profile, liquidity, and overall deal structure all influence available terms. Properties with lower or negative DSCR may still qualify, but with different leverage or structures.
Are DSCR loan rates higher than conventional loans?
No, DSCR loan rates are not typically higher than comparable investment-property conventional loans when evaluated on an apples-to-apples basis.
While DSCR loans are often compared to consumer conventional loans for primary residences, that is not an accurate comparison. When compared to investment-property conventional loans, DSCR rates are generally very similar, and in some cases can be competitive or even favorable depending on structure.
Rate differences, when they exist, are usually driven by:
Loan-to-value (LTV)
DSCR level or structure
Credit profile
Interest-only vs fully amortized payments
Prepayment penalty structure
In scenarios where DSCR loans price slightly higher, the tradeoff is typically increased flexibility, including reduced income documentation, entity ownership, and alternative qualification methods. In many transactions, the rate difference is minimal and outweighed by structural advantages.
As with all DSCR loans, pricing is program- and structure-dependent, and the loan must be strictly business-purpose and non-owner-occupied.
Are interest-only DSCR loans available?
Yes, interest-only DSCR loans are available under many DSCR programs.
Interest-only structures can be used to:
Reduce the monthly payment
Improve or support DSCR qualification
Increase cash flow flexibility
Support value-add or transitional strategies
DSCR is calculated using the interest-only payment rather than a fully amortized payment, which can significantly improve the qualifying ratio.
What are prepayment penalties?
A prepayment penalty is a fee that may be charged if a DSCR loan is paid off or refinanced within a specified period after closing.
DSCR loans commonly include prepayment penalty periods ranging from one to five years, though some lenders do offer no prepayment penalty options depending on the program and pricing.
Common DSCR prepayment penalty structures include:
Declining step-down penalties, such as a 5-4-3-2-1 structure
Flat penalties, such as a fixed 5% fee during the penalty period
The prepayment penalty is not fixed across all DSCR loans and is often adjustable based on the investor’s strategy. Loans with shorter or no prepayment penalties may carry different pricing or leverage, while longer penalty periods can improve overall terms.
Because prepayment penalties directly impact exit strategy and flexibility, they should be discussed with your capital advisor to determine the structure that best aligns with your investment timeline.