DSCR Loan Prepayment Penalties | DSCR Loans Video Guide Part 4

Robin SimonPoster

#1 Private Lending & Conventional Mortgage Advice Contributor

Lender
Austin, TX

Posted July 16, 2026 10:22

https://www.youtube.com/watch?v=fPK1D6VRa2A&t=2s

Welcome to Part 4 of our comprehensive DSCR Loan Video Guide: DSCR Loan Prepayment Penalties

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Complete Guide To DSCR Loan Prepayment Penalties

Once you have a solid understanding of the basics of DSCR Loans structure, savvy borrowers can really optimize their financing by further customizing their loans with more advanced provisions. These loan aspects, particularly prepayment penalty provisions and hybrid (fixed to ARM) rate structures are more complex, however a thorough understanding of how they work and when to utilize them can mean the difference between okay returns and the type of snowballing wealth that is the key to achieving financial freedom.

Prepayment penalties are a key provision in DSCR Loans that determine if there are any fees associated with paying the loan off prior to its maturity date. Prepayment Penalty Provisions for DSCR Loans have two key aspects:

1) Prepay Fee Amount which means that amount of the penalty fee that must be paid by the borrower (typically expressed as a percentage of the outstanding loan balance) and

2) Prepay Fee Duration (or how long the prepayment fee applies, typically expressed in years, but better expressed and thought of in months or payment dates). While prepayment penalties represent an additional cost to the borrower, they can actually be advantageous for some investors since harsher (higher fee percentages and/or longer penalty periods) prepayment provisions allow lenders to offer significantly lower rates and better terms. This is because it allows DSCR lenders and note holders to protect their own cash flows in case market interest rates fall and borrowers refinance into lower rates. In this case, the lenders can protect their investment by knowing less refinancing activity will occur in the future or if interest rates decline, they will still obtain expected returns through collection of a prepayment penalty fee.

👀📺In This Video, We Will Cover:

➡️What Are Prepayment Penalties for DSCR Loans?

➡️The 2️⃣ Key Aspects of Prepay Penalties: Fee Amount & Duration

➡️🤔How Prepay Penalties Can be Advantageous For Borrowers?

➡️DSCR Loan Prepay Penalties vs. CRE Loan Prepay Restrictions

➡️🤔How Much Is the Typical Prepayment Penalty Fee Amount?

➡️What Are "Descending" Prepayment Penalties for DSCR Loans?

➡️What are "Flat" Prepayment Penalties for DSCR Loans (like 5/5/5)?

➡️What is "Cali-Style" (6 Months' Interest) Prepayment Penalties for DSCR Loans?

➡️20% Freely Prepayable Each Year Loophole - Cali-Style Prepay

➡️🤔FAQ: Why Do Restrictions for Prepayments on DSCR Loans exist in some states?

➡️Clarification: Prepayment Penalty Rules for DSCR Loans 1-4 Unit Properties for DSCR "Multifamily" Loans (5-10 Units)