Are Prepayment Penalties allowed on DSCR Loans in Vermont?

[Robin Simon]

Prepayment Penalty Rules for DSCR Loans in Vermont

Prepayment Penalties are Fully Allowed with no restrictions for DSCR Loans in Vermont. Vermont law generally prohibits prepayment penalties on loans under 9 V.S.A. § 45, stating that a borrower may prepay at any time without penalty. However, this restriction does not apply to DSCR Loans or other loans made for income-producing business purposes. Section § 46(2) explicitly carves out an exception, allowing prepayment penalties on business-purpose loans, so long as the borrower does not occupy the property as a residence.

Since DSCR Loans are used to finance non-owner-occupied investment properties, they fall outside the scope of Vermont's prepayment prohibition. As such, DSCR Lenders can typically offer all standard prepayment penalty options such as Descending Prepay Penalties (i.e. “5/4/3/2/1”), Flat Prepay (i.e. 5/5/5) or other tailored structures in the Green Mountain State.

Note: Vermont is a state in which DSCR Loan prepayment penalty restrictions are commonly misunderstood, as even some large-scale lenders and mortgage brokers overlook the business-purpose carveout in § 46, incorrectly concluding that all prepayment penalties are banned in Vermont. However, a close reading, and common industry standard practice confirms DSCR Loans are exempt from prepayment restrictions under these statutes, although there is no guarantee that these laws and industry interpretations won’t change in the future and it’s always a best practice for borrowers considering DSCR Loans in Vermont to consult with an attorney to fully understand applicable regulations.

FULL Complete 2026 Guide To DSCR Loan Prepayment Penalties

More:

Get FREE e-Book: 10 Obstacles for DSCR Loans and How to Overcome Them!

Apply for a DSCR Loan: Web App

Get "The Book on DSCR Loans" on Amazon! Short-Term $2.99 Kindle Sale