Updated Rates as of August 2026
Many DSCR loans include prepayment penalties, often 3–5 year step-down (e.g., 5-4-3-2-1) or a flat percentage of the balance. Some programs offer no prepay at a higher rate.
Model your hold period before you lock. Use the DSCR prepayment penalty calculator.
Prepay structure comparison
| Structure | How it works | Best for |
|---|---|---|
| 5-4-3-2-1 step-down | 5% year 1, stepping down | Hold 5+ years |
| 3-2-1 step-down | Shorter ladder | 3–5 year hold |
| Flat 3% | 3% of balance anytime in term | Simple but costly on early exit |
| No prepay | Higher rate or lower LTV | Flip-to-hold under 3 years |
Model your hold before you lock. Use DSCR prepayment penalty calculator.
Hard money vs DSCR prepay
| Product | Prepay | Minimum interest |
|---|---|---|
| Hard money / bridge | Usually none at sale | 3–6 months common |
| DSCR 30-year | 3–5 year step-down common | N/A (amortizing) |
Jaken Finance Group discloses prepay structure on your DSCR term sheet. Compare hold period vs rate when choosing a program. DSCR hub · 5.75%–10.5% rates
Break-even hold period with prepay
On a $300K DSCR loan with 5-4-3-2-1 prepay and 7.5% rate vs no-prepay at 8.25%:
| Hold years | Prepay cost (approx) | Rate savings | Better option |
|---|---|---|---|
| 2 | ~$12,000 (4%) | ~$4,500/yr | Shorter hold → no-prepay |
| 5 | ~$6,000 (2%) | ~$4,500/yr | Prepay ladder OK |
| 10+ | $0 | ~$4,500/yr | Prepay ladder wins |
Use DSCR prepayment penalty calculator.
Selling with prepay — net proceeds impact
Prepay penalty comes from sale proceeds at payoff — reduce expected net by penalty percentage when modeling flip-to-clear-rentals strategy. Jaken Finance Group discloses structure on term sheet. DSCR hub
Prepay structures you’ll see on DSCR term sheets
| Type | How it works | Best for |
|---|---|---|
| 5-4-3-2-1 stepdown | 5% Y1 → 1% Y5 | Long hold, rate certainty |
| 3-2-1 | Shorter penalty window | 3–5 year hold |
| Yield maintenance | Complex buyout formula | Rare on investor DSCR |
| No prepay | Higher rate | BRRRR exit within 12 mo |
Prepay applies to payoff and most refis — confirm whether partial prepay (principal curtailment) triggers penalty. Jaken Finance Group DSCR rates 5.75%–10.5% with file-specific prepay — ask on your term sheet.
BRRRR investors — match prepay to exit plan
If you plan hard money bridge → DSCR refi at month 10, a 5-year stepdown can cost 3%–5% of UPB on the refi payoff — often $9K–$15K on a $300K loan. No-prepay or 12-month soft prepay products may carry 0.25%–0.50% rate premium but save on short holds. Model both sides. Hard money to DSCR · DSCR timeline · closing costs
Prepay penalty by hold period — worked math
On a $320,000 DSCR loan at 7.25% with 5-4-3-2-1 prepay:
| Payoff year | Penalty % | Penalty $ | Cumulative rate savings vs no-prepay at 8.0% |
|---|---|---|---|
| Year 1 | 5% | $16,000 | Negative — prepay cost exceeds savings |
| Year 2 | 4% | $12,800 | Break-even zone |
| Year 3 | 3% | $9,600 | Prepay ladder wins |
| Year 5+ | 0% | $0 | Full rate savings |
Annual rate savings on 0.75% spread: ~$2,400/yr. Prepay at year 2 costs $12,800 — you need 5+ years of hold for the stepdown to beat no-prepay pricing on a short hold.
Portfolio investors — prepay on sale vs refi
Selling a rental with DSCR debt triggers prepay at payoff unless you are past the penalty window. Budget penalty into net proceeds:
| Sale price | DSCR payoff | 3% prepay on $280K UPB | Net before agent commission |
|---|---|---|---|
| $350,000 | $280,000 | $8,400 | $61,600 |
1031 exchange into a new property may defer capital gains but does not avoid prepay on the departing loan — confirm whether your exchange accommodator models prepay in the boot calculation.
Hard money prepay vs DSCR prepay — side by side
| Feature | Hard money / bridge | DSCR 30-year |
|---|---|---|
| Prepay penalty | Rare at sale | 3–5 year stepdown common |
| Minimum interest | 3–6 months typical | None (amortizing) |
| Early payoff trigger | Sale, refi, maturity | Sale, refi, curtailment |
| Rate band (Jaken Finance Group) | 8.99%–13.5% IO | 5.75%–10.5% |
Bridge minimum interest on a $250K loan at 11% for 6 months: ~$13,750 — functionally similar to a 2% DSCR prepay on a $280K loan ($5,600) but concentrated in the short hold.
Questions to ask on your DSCR term sheet
- Is prepay hard (any payoff) or soft (sale only)?
- Does partial principal curtailment trigger penalty?
- Is there a 12-month no-prepay option at higher rate?
- How does prepay interact with 1031 exchange timing?
- What is the defeasance or yield maintenance formula if any?
Jaken Finance Group discloses prepay structure upfront — compare hold period before you lock rate within the 5.75%–10.5% band.
Soft prepay vs hard prepay — know the difference
| Type | Triggers penalty | Typical use |
|---|---|---|
| Hard prepay | Any payoff including refi | Lower rate on 30-year paper |
| Soft prepay | Sale only — refi allowed | BRRRR-friendly |
| No prepay | None | Short hold or rate premium |
BRRRR investors who plan hard money → DSCR refi at month 10 need soft prepay or no prepay — hard prepay on the DSCR loan penalizes the refi payoff even though you are not selling.
Rate buy-down vs prepay waiver — trade-off math
Some lenders offer:
- Lower rate + 5-year stepdown — best for 7+ year hold
- +0.375% rate + 12-month soft prepay — best for BRRRR
- +0.50% rate + no prepay — best for 2–3 year hold before sale
On $300K at 7.0% vs 7.5%, the 0.5% spread costs $1,500/year. A 3% prepay at year 2 costs $9,000 — three years of rate premium buys freedom to exit.
Portfolio sale — prepay on multiple DSCR loans
Selling five rentals with DSCR debt means five prepay calculations:
| Property | UPB | Prepay year | Penalty % | Penalty $ |
|---|---|---|---|---|
| Door 1 | $220K | Year 2 | 4% | $8,800 |
| Door 2 | $185K | Year 3 | 3% | $5,550 |
| Door 3 | $260K | Year 1 | 5% | $13,000 |
| Total | $27,350 |
Stagger acquisitions by 12 months to ladder prepay windows — or hold until year 5+ when stepdown reaches zero.
Partial curtailment — hidden prepay trigger
Paying down $50K principal to improve DSCR before refi may trigger prepay on curtailment above 20% of UPB in a 12-month window. Ask on the term sheet:
- Is there a free curtailment allowance (often 20%/yr)?
- Does rate-and-term refi to same lender waive prepay?
- Does 1031 exchange into new property avoid prepay on departing loan?
Worked example — BRRRR investor choosing prepay structure
| Option | Rate | Prepay | Refi at month 11 cost |
|---|---|---|---|
| A: 7.0% + 5-4-3-2-1 | 7.0% | Hard | ~$9,600 (3% on $320K) |
| B: 7.375% + soft 24 mo | 7.375% | Soft — refi OK | $0 |
| C: 7.75% + no prepay | 7.75% | None | $0 |
Option B saves $9,600 vs A on refi — costs $375/yr more in rate ($412 total over 11 mo). Soft prepay wins on short bridge-to-DSCR holds.
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