Are Prepayment Penalties Allowed on DSCR Loans in Delaware?

[Robin Simon]

Prepayment Penalty Rules for DSCR Loans in Delaware

There are Varied Interpretations on whether Prepayment Penalties are allowed for DSCR Loans in Delaware, with different policies among DSCR Lenders. Delaware’s code defines “residential mortgage loan” as a loan “primarily for personal, family, or household use and secured by a dwelling or land where a dwelling is constructed or intended to be constructed," which clearly does not apply to DSCR Loans since the purpose is always "business-purpose" and not for "personal, family or household use." While any restrictions related to "residential mortgage loans" would therefore not apply in Delaware, some DSCR Lenders interpret DSCR Loans to fall under state regulations in , which covers “closed end credit” for “other businesses” which could be interpreted to include DSCR Loans. This section of the Delaware code restricts prepayment entirely, stating plainly “a borrower may prepay a loan in full at any time” with “loan” defined in this section as “any single extension of closed end credit.” Thus, if a lender interprets DSCR Loans to follow under this general business statute, it follows that prepayment penalties are not allowed for DSCR Loans in Delaware.

Thus, there are varied interpretations among DSCR Lenders on whether these state regulations apply, with some DSCR Lenders offering all standard prepayment options (such as Descending or Flat Prepay Structures), and other DSCR Lenders not allowing prepayment penalty provisions at all in Delaware. If looking to invest in Delaware and considering a DSCR Loan, it's definitely borrower best practice to confirm lender-specific prepayment policy upfront and as early on as possible in the process.

FULL Complete 2026 Guide To DSCR Loan Prepayment Penalties

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