What interest rate should I expect on a DSCR loan?
DSCR loan rates typically sit one to two percentage points above a conventional owner-occupied mortgage, and within that band your coverage ratio, credit score, leverage, and prepayment penalty choice decide where you land. A 1.25 ratio, 740 score, and 75 percent loan-to-value with a five-year prepayment penalty gets the low end; a 1.00 ratio at 80 percent with no penalty gets the high end.
What sets the rate
| Factor | Effect on rate |
|---|---|
| DSCR 1.25 and above | Best tier |
| DSCR 1.00 to 1.24 | Roughly 0.25 to 0.5 point higher |
| DSCR under 1.00 | 0.5 to 1.5 points higher |
| Credit 740+ vs 680 | About 0.5 to 1 point lower |
| Loan-to-value 65 vs 80 percent | About 0.25 to 0.75 point lower |
| Prepayment penalty 5 years vs none | About 0.5 to 1 point lower |
| Interest-only period | About 0.125 to 0.25 point higher |
| Loan under $150,000 | Higher, and fewer lenders |
These are typical spreads. Each lender publishes its own grid, and grids change with the bond market.
Fixed, ARM, and interest-only
Most DSCR loans are 30-year terms. You can usually choose a 30-year fixed, a 5/6 or 7/6 adjustable that is fixed for five or seven years, or a fixed rate with a ten-year interest-only period followed by 20 years of amortization. Interest-only raises the rate slightly but lowers the payment, which improves the coverage ratio and can move you into a better tier.
Points and buydowns
Lenders quote a par rate and let you buy it down. One discount point, meaning one percent of the loan amount, typically lowers the rate 0.25 to 0.375 point. On a $500,000 loan that is $5,000 to save roughly $100 a month, which pays back in about four years. Buying down makes sense if you plan to hold well past the payback.
Prepayment penalties
The prepayment penalty is the biggest lever after credit. A standard structure is 5-4-3-2-1: five percent of the balance if you pay off in year one, stepping down one point a year. A three-year 3-2-1 costs a little more in rate. No penalty costs the most. Choose based on how long you plan to hold: if you may sell or refinance within three years, a shorter penalty is worth the rate.
A worked example
On a $400,000 loan, a one-point rate difference is about $250 a month, or $3,000 a year. Over a five-year hold that is $15,000, which is why moving from a 1.05 ratio to 1.25 through a slightly larger down payment or an interest-only option often pays for itself.
How CommFi handles it
Our lending desk prices the loan first and funds direct when it fits. When a different lender's grid is better for your ratio and credit, the desk searches a database of 7,000+ lenders and the ones that fit compete on rate. Zero upfront fees.
Related reading
Related questions
- Why are DSCR rates higher than conventional mortgage rates?
- The loans qualify on property income rather than personal income and are made to investors, which lenders price as more risk. Expect one to two points above an owner-occupied rate.
- Can I buy down a DSCR rate?
- Yes. One discount point usually lowers the rate 0.25 to 0.375 point. It pays back over roughly three to five years.
- Does a prepayment penalty lower my rate?
- Yes. A five-year step-down penalty is typically a half to one point cheaper in rate than no penalty.
- Are DSCR loans fixed rate?
- Most are 30-year fixed. Adjustable and interest-only options exist and can lower the payment used in the coverage ratio.
- How much does one point in rate cost per month?
- About $60 to $65 per month per $100,000 borrowed on a 30-year loan, so roughly $250 a month on $400,000.
Property developer and licensed appraiser. 22+ years in real estate: TIC conversions, multi-unit redevelopments, mixed-use, fix and flips, commercial DSCR.