Are Prepayment Penalties allowed on DSCR Loans in Minnesota?

[Robin Simon]

Prepayment Penalty Rules for DSCR Loans in Minnesota

Prepayment Penalties are Not Allowed (in practice) on DSCR Loans in Minnesota. State law in Minnesota treats all loans secured by 1–4 unit residential real estate as residential mortgage loans, regardless of occupancy. Under Minn. Stat. § 58.02, subd. 18, a "residential mortgage loan" includes loans secured by 1–4 unit residential property, “whether or not the owner occupies the real property.” As a result, even business-purpose DSCR loans secured by residential rentals are covered.

Minn. Stat. § 58.137 strictly limits prepayment penalties on mortgage loans in Minnesota to four years and fees no more than two months of interest, as well as additional restrictions such as requiring loans to always be partially prepayable with no fees applied. While these terms do not outright ban prepayment penalties, the restrictions are so narrow that virtually all DSCR Lenders opt not to offer any prepayment penalties on Minnesota DSCR Loans. As a result, Minnesota has become one of the only states where DSCR Loan prepay penalties are effectively prohibited in practice, except potentially for multifamily (5+ unit) or mixed-use properties in the Gopher State.

FULL Complete 2026 Guide To DSCR Loan Prepayment Penalties

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