Use this DSCR prepayment penalty calculator to estimate the cost of paying off an investor rental loan early — before you lock terms or plan a sale. Enter payoff balance, loan year, and prepay structure to see the penalty rate, estimated penalty dollars, and total payoff including prepay.
Prepay does not change monthly P&I, but it changes your exit economics. Pair this tool with the DSCR loan payment calculator, the DSCR loan comparison calculator, and the CFPB mortgage overview. Full prepay guide: DSCR loan prepayment penalties.
DSCR prepayment penalty calculator
Estimate a step-down or flat prepay charge if you pay off early. Illustration only — actual penalties follow your note. Not a loan offer.
Penalty rate
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Estimated penalty ($)
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Total payoff incl. penalty
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Why DSCR loans include prepayment penalties
DSCR lenders price long-term investor paper expecting a minimum yield. When a borrower pays off in year two, the lender loses future interest. Prepay compensates that loss — and keeps rates lower than they would be on fully open loans. Most non-owner-occupied term sheets include a prepay schedule unless you buy it out with a higher rate.
Prepay matters for:
- Fix-and-flip hold misfires — selling earlier than planned
- BRRRR exits — refi from bridge or DSCR into a new DSCR
- Rate-drop refis — paying off a higher coupon inside the penalty window
- Portfolio sales — disposing of a rental before year five
5-4-3-2-1 step-down structure explained
The most common DSCR prepay is a percentage of the payoff balance that steps down each loan year:
| Loan year | Penalty rate | Penalty on $310,000 balance |
|---|---|---|
| Year 1 | 5% | $15,500 |
| Year 2 | 4% | $12,400 |
| Year 3 | 3% | $9,300 |
| Year 4 | 2% | $6,200 |
| Year 5 | 1% | $3,100 |
| Year 6+ | 0% | $0 |
Calculator defaults use a $310,000 balance in year 2 → 4% = $12,400 penalty → total payoff ≈ $322,400 before per-diem interest and escrow adjustments.
3-year flat prepay vs 5-year step-down
Some DSCR grids offer a shorter 3% / 2% / 1% flat schedule:
| Structure | Year 1 | Year 2 | Year 3 | Year 4+ |
|---|---|---|---|---|
| 5-4-3-2-1 step-down | 5% | 4% | 3% | 2% / 1% / 0% |
| 3-year flat | 3% | 2% | 1% | 0% |
On $310,000 in year 1, 5-4-3-2-1 costs $15,500 vs $9,300 on 3-year flat year 1 — but the 3-year structure ends penalties sooner. Pick the structure that matches your hold plan, not just year-one math.
Worked example: sell in year 2 vs wait until year 6
Investor holds a DSCR rental with $310,000 payoff. Sale nets $385,000 before payoff and prepay:
- Sell in year 2 (4% prepay): proceeds after payoff and penalty ≈ $385,000 − $310,000 − $12,400 = $62,600
- Sell in year 6 (0% prepay): proceeds ≈ $385,000 − $310,000 = $75,000
- Prepay cost of selling early: $12,400 — plus any extra P&I paid while waiting
Waiting avoids prepay but carries holding costs, vacancy risk, and opportunity cost. The right answer depends on cap rate, rent trend, and your next deployment — not prepay alone.
Refinance trigger — when paying prepay still pencils
Suppose you locked DSCR at 8.25% on $310,000 ($2,402/mo P&I) and rates drop so a new 85% rate-and-term refi at 6.99% on the same balance saves ≈ $216/mo — about $2,592/year.
Paying 4% prepay ($12,400) in year 2 to capture that savings has a simple payback of roughly 4.8 years on prepay alone — longer if closing costs on the new loan are included. Run the full comparison in the comparison calculator before you refi inside the penalty window.
Prepay and cash-out — stacking exit costs
A cash-out refi pays off the old loan and triggers prepay on the existing note. Model new proceeds in the DSCR cash-out calculator, then subtract prepay from the old loan here. Cash-out LTV caps at 80%; rate-and-term at 85%. Summary: Up to 85% LTV purchase, 80% LTV cash-out, and 85% LTV rate-and-term in select markets for qualified borrowers.
No prepayment penalty option
Select products offer no prepay — valuable if you plan to sell within three years or BRRRR out quickly. The trade-off is usually a higher rate. Compare:
- 7.75% with 5-4-3-2-1 prepay vs 8.25% with no prepay on $310,000
- P&I difference: ≈ $103/mo — about $1,236/year
- Break-even vs year-2 prepay ($12,400): roughly 10 years of rate premium
If you are confident you will exit in year 2, no-prepay pricing can win even at a higher coupon. If you will hold 10+ years, step-down prepay with a lower rate usually wins.
Yield maintenance and partial prepay — read your note
This calculator models fixed-percentage step-down and flat prepay. Some bank and agency-style investor products use yield maintenance, which can produce a larger penalty when rates fall. Partial curtailments above a threshold may also trigger prepay on some notes. Confirm language on your term sheet and read prepay in the DSCR glossary.
Prepay vs monthly payment in underwriting
Underwriters score DSCR on P&I, not prepay. Prepay is an exit cost — invisible in the DSCR calculator or minimum rent calculator. Build it into your hold/sell model alongside reserves ( reserves calculator) and closing costs ( closing cost calculator).
Hold period planning for portfolio investors
Portfolio investors stacking multiple DSCR loans should align prepay windows across properties when possible — or accept staggered exit costs. Selling two doors in year 2 with $310,000 balances costs ≈ $24,800 in prepay alone before commissions and transfer taxes.
Current DSCR rate band: 5.75%–10.5%. Pricing detail: how DSCR loan rates are set.
Defeasance and yield maintenance — when percentage prepay understates cost
Percentage step-down prepay is the investor norm on DSCR term loans, but some bank and conduit-style products use yield maintenance or defeasance. Yield maintenance calculates the present value of lost interest to the lender — on a low-coupon loan in a falling-rate environment, the penalty can exceed 5% of balance. This calculator does not model yield maintenance; treat any yield-maintenance language as a flag to get a formal payoff quote from the servicer before you list or refi.
Partial prepay and curtailment triggers
Some DSCR notes treat curtailments above a threshold — often 20% of original balance in a 12-month window — as a prepayment event subject to penalty. Selling is a full payoff; large principal paydowns from a capital event can trigger prepay even without a sale. Read the note and read DSCR loan prepayment penalties.
Prepay buyout at origination — rate vs flexibility trade
Some lenders offer a rate buy-up to shorten or eliminate prepay. Modeling approach:
| Option | Rate on $310K | Prepay | Year-2 exit cost |
|---|---|---|---|
| Standard 5-4-3-2-1 | 7.75% | 4% in yr 2 | $12,400 |
| 3-year 3-2-1 | 7.95% | 2% in yr 2 | $6,200 |
| No prepay | 8.25% | 0% | $0 |
Compare lifetime interest plus expected prepay for your hold period in the comparison calculator.
BRRRR and double prepay risk
BRRRR sponsors may pay prepay on bridge/hard money and later on the DSCR permanent loan if they refi or sell inside the window. Sequence matters: bridge exit fees are separate from DSCR prepay. When you model a year-2 sale after BRRRR, include DSCR prepay from this tool plus any remaining prepay on other liens.
Transfer on sale — when prepay is unavoidable
Most DSCR loans are assumable only on select programs — a sale typically pays off the loan and triggers prepay if inside the schedule. Assignments of contract or subject-to deals do not transfer the loan without lender approval. Budget prepay into your disposition model when listing inside year five.
Prepay and CAP rate math — exit decision framework
Before selling in year 2 with 4% prepay, compare:
- Net sale proceeds after payoff, prepay, commissions, and transfer taxes
- Present value of holding 3 more years at current NOI minus PITIA
- Opportunity cost of equity deployed in the next acquisition
- Prepay saved by waiting until year 6 (0% on 5-4-3-2-1)
Prepay is one line — not the whole decision. Use the payment calculator for carry during the hold extension and the cash-out calculator if refi replaces sale.
Program rates: 5.75%–10.5%. LTV: Up to 85% LTV purchase, 80% LTV cash-out, and 85% LTV rate-and-term in select markets for qualified borrowers.
Negotiating prepay at term sheet — what to ask
Prepay is negotiable within the lender grid. Questions worth asking before lock:
- Is 5-4-3-2-1 fixed or can we move to 3-year 3-2-1 for a rate adjustment?
- Is there a no-prepay option and what is the rate delta?
- Does partial curtailment trigger prepay — what threshold?
- Is the penalty calculated on payoff balance or original loan amount?
- Are sale to unrelated third party and refi treated the same?
Get answers in writing on the term sheet. Use this calculator to translate percentage schedules into dollars on your expected balance at exit year — not today's origination balance if you expect significant paydown.
Five-year hold vs five-year prepay — alignment check
If your business plan says "sell in year 4," a 5-4-3-2-1 schedule hits 2% in year 4 — on $310,000 that is $6,200. If your plan says "refi in year 3," year-3 penalty is 3% — $9,300. Align prepay structure with hold plan or buy flexibility upfront. Investors who routinely BRRRR out in 18–24 months often prioritize shorter prepay windows even at slightly higher rates.
Compare structures with live quotes via pre-qualify · DSCR loans hub.
Year-by-year total exit cost — $310,000 balance
Full picture on 5-4-3-2-1 prepay plus payoff (ignoring per-diem interest and third-party fees):
| Exit year | Prepay % | Prepay $ | Total w/ payoff |
|---|---|---|---|
| 1 | 5% | $15,500 | $325,500 |
| 2 | 4% | $12,400 | $322,400 |
| 3 | 3% | $9,300 | $319,300 |
| 4 | 2% | $6,200 | $316,200 |
| 5 | 1% | $3,100 | $313,100 |
| 6+ | 0% | $0 | $310,000 |
Waiting from year 2 to year 6 saves $12,400 in prepay on this balance — offset by four years of P&I, capex, and opportunity cost. Use the payment calculator for carry during the wait.
Prepay disclosure on the Closing Disclosure
Prepayment penalty terms appear on your Closing Disclosure and note — not just the term sheet. Before closing, confirm the schedule matches what you modeled here. Mismatch between 5-4-3-2-1 and 3-year flat is a common clerical error that costs real dollars at exit. Screenshot the prepay paragraph at closing and store it with your disposition model.
If you sell through a 1031 exchange, prepay still applies on the loan payoff — the exchange facilitator wires payoff including penalty. Model total debt relief in this calculator before you identify replacement property timelines.
Prepay on assumption and sale to investor buyer
When you sell to another investor who will assume existing financing, prepay may still apply if the lender does not approve assumption and the sale pays off the note. Assumption approvals are rare on standard DSCR investor paper. Budget full payoff plus penalty for the buyer's model unless you have written assumption approval before marketing the property.
Compare prepay structures on new quotes in the comparison calculator. Lock terms with pre-qualify when hold period and prepay structure align. Up to 85% LTV purchase, 80% LTV cash-out, and 85% LTV rate-and-term in select markets for qualified borrowers.
Refi to avoid prepay: Some investors wait until month 61 to refi, eating a higher coupon for months 49–60 to avoid a 1% penalty in year 5. Whether that trade wins depends on rate delta on the new loan minus extra interest paid while waiting. Model both paths: prepay at year 3 refi vs wait to year 6 with continuing P&I at the old rate.
Store your closed note prepay page with the property file — disposition analysis three years later should not rely on memory of which step-down schedule you locked.
Related DSCR tools
- DSCR loan comparison calculator — compare prepay vs rate
- DSCR loan payment calculator
- DSCR cash-out calculator
- DSCR calculator
- DSCR loan glossary
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Calculator outputs are educational estimates only. Rates, terms and conditions offered only to qualified borrowers and are subject to change without notice. All loans are subject to full underwriting. Jaken Finance Group only finances non-owner occupied investment properties.