Do DSCR loans have a prepayment penalty?

Most DSCR loans do. Unlike a conventional investment loan, which cannot carry one, a DSCR loan usually locks you in for three to five years. Pay off or refinance inside that window and you owe a fee, commonly 2 to 5% of the balance. The exact schedule varies by lender and state, so ask for it in writing before you sign.

Three structures are common. A step-down such as 5-4-3-2-1 charges 5% of the balance in year one and drops a point each year. A flat percentage charges the same amount, often 3 or 5%, any time inside the term. Yield maintenance, more typical on commercial mortgage paper, makes the lender whole on lost interest and can cost far more. On a $500,000 rental renting for $4,000 a month with a $375,000 loan, a year-two payoff at 4% runs $15,000.

Buying the penalty down makes sense when your hold is short: a planned refinance once rents rise, or a flip exit. Expect a rate increase of 0.25 to 1 point for a shorter term or none at all. Weigh that against the fee you would owe. Long holds usually keep the penalty and the lower rate. See how the tradeoff compares in DSCR versus conventional, and check the rest of what lenders ask in DSCR loan requirements.