Are Prepayment Penalties Allowed on DSCR Loans in Kansas?

[Robin Simon]

Prepayment Penalty Rules for DSCR Loans in Kansas

There are Varied Interpretations on whether Prepayment Penalties are allowed for DSCR Loans in Kansas, with different policies among DSCR Lenders. Most DSCR Lenders historically interpreted Kansas law to prohibit prepayment penalties on DSCR Loans, largely due to the language in Kan. Stat. § 16-207(b), which states that “no penalty shall be assessed… where such prepayment is made more than six months after the date of execution of such note.” Because the statute applies to “home loans,” and that term is undefined, some lenders assumed it could extend to non-owner-occupied residential investment properties — i.e., DSCR Loans secured by rented homes. Additionally, the six-month limitation rendered most prepayment penalty structures economically unviable.

However, Kansas House Bill 2247, passed in 2024 and effective January 1, 2025, the Kansas Mortgage Business Act and introduced greater clarity. Specifically, K.S.A. § 9-2201(y) (as amended by HB 2247) defines “mortgage loan” explicitly as a loan secured by residential real estate “occupied or intended to be occupied for residential purposes by the owner.” This wording strongly suggests that investment properties — which are neither occupied nor intended to be occupied by the owner — fall outside the definition of a “mortgage loan,” and thus the statutory regulations including prepayment restrictions.

As a result, while the 2024 revisions do not explicitly authorize prepayment penalties on DSCR Loans, they effectively exclude such loans from the limitations in § 16-207. Many DSCR Lenders responded in 2025 by revising their Kansas lending policies, now offering all standard prepayment penalty options such as Descending Prepay Penalties (i.e. “5/4/3/2/1”), Flat Prepay (i.e. 5/5/5/5/5) or other tailored structures. That said, some DSCR Lenders remain cautious, continuing to not allow prepayment penalties in Kansas due to regulatory uncertainty or legacy overlays. But the trend is clearly shifting toward broader acceptance, and further clarification or court interpretation could solidify a more universal DSCR Loan industry consensus on prepayment provisions in the Sunflower State in the future.

FULL Complete 2026 Guide To DSCR Loan Prepayment Penalties

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