Prepayment on DSCR

[Andy Yeoman]

I am under contract on a duplex and meeting with lenders on a DSCR in Georgia. Question: how common are the prepayment penalties on DSCR? The first lender I met with is a 5-4-3-2-1 or 3-2-1 for and additional 3/4 of a point. This means if I prepay in the first year its 5% second year 4%, etc. Do I need to keep searching for better terms, or is this common with all DSCR loans? I would hope to refinance or possibly even sell within 5 years.

[Derek Brickley]

Hey Andy! 

Well it's somewhat common to have a prepayment penalty, but depending on your deal and goals with it may not actually be helpful.  Typically if you're at $200k loan amount or lower, then maybe a 5 year prepayment makes sense since it would take a lot for it to make sense to refinance.  If you're in the $200k-$400k range, then we would start to weigh having a 3 year prepayment penalty.  If it's much above that, we typically recommend a 1 year prepayment penalty.  

Happy to go through that tradeoff though for you if that's helpful, feel free to reach out.