Can I get a DSCR loan with no prepayment penalty?
Yes. No-prepay DSCR programs exist, especially on purchase. Expect 0.25–0.5% rate premium over a 5-year prepay structure.
DSCR loans typically include a prepayment penalty (PPP) - a fee charged if the loan is paid off within an early period, usually a declining schedule (5/4/3/2/1 = 5% if prepaid in year 1, 4% in year 2, etc.). The PPP is how lenders amortize their origination cost on these business-purpose loans. No-prepay options are available, particularly on purchase loans, but cost more in rate. Typical pricing trade: 5/4/3/2/1 PPP = base rate; 3-year PPP = +0.125-0.25%; 1-year PPP = +0.25-0.4%; no PPP = +0.4-0.6%. Cash-out refinance with no-prepay is harder to find than purchase no-prepay - most cash-out programs price PPP heavily because of the elevated refi/sale risk. For BRRRR investors planning to refinance into long-term DSCR within 12 months, no-prepay or 1-year prepay makes sense. For long-term hold investors, the 5/4/3/2/1 structure is usually optimal.
People also ask
How much is a DSCR prepayment penalty?
Standard structure: 5% in year 1, declining 1% per year, expiring after year 5. Some programs use 3% flat for years 1-3 with no penalty after.
Does selling the property trigger the prepayment penalty?
Yes. PPP applies to any payoff event - sale, refinance, or voluntary early payoff - within the prepay window.
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