Are Prepayment Penalties Allowed on DSCR Loans in California?

[Robin Simon]

Prepayment Penalty Rules for DSCR Loans in California

Prepayment Penalties are Fully Allowed with no restrictions for DSCR Loans in California. California law permits prepayment penalties on business-purpose loans, including DSCR Loans, as long as the loan is not for personal, family, or household use. Under Cal. Civil Code § 2954.9, restrictions on prepayment penalties apply only to consumer-purpose residential loans. As such, DSCR Lenders can typically offer all standard prepayment penalty options in the Golden State.

DSCR Lenders in California frequently offer the “California-style” prepay of 6 months' interest during the first five years of the term, with 20% of the prepayment amount each year exempt from any fees. Under the California-style prepayment penalty provision, it means if the full loan amount is prepaid, the fee is equal to the interest rate divided by two (to get six months’ worth of interest, or half of a full years’ worth), multiplied by 80% of the outstanding loan balance. It’s key to remember is that the 20% freely prepayable portion applies a 20% balance exemption for each year so a loan that is partially prepaid for 20% of the loan balance each year faces no prepayment penalty with this structure. Note that while this is referred to as “California Style” prepayment penalties, typically DSCR Lenders that offer this prepayment penalty structure will allow this option for all states that have no prepay restrictions, not just for loans on properties located in California!

FULL Complete 2026 Guide To DSCR Loan Prepayment Penalties

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