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DSCR Loan Interest Rates


Last updated: April 22, 2024


Current DSCR Loan Rate



The 5 Year US Treasury, currently 4.66% as of this update, serves as a critical pricing benchmark ("risk free rate") for DSCR loan interest rates. The yield on the 5 Year US Treasury has been and will likely continue to be volatile until inflation is firmly under control. Thanks to inconsistent data that inflation is abating, and updated guidance from Federal Reserve Chairman Jerome Powell that there may not be any rate cuts in 2024, the 5 Yr Treasury has increased 0.82% since January 1st, 2024 and is down 0.3% from the peak in mid-October 2023, causing a similar decrease for DSCR loan interest rates.


The 5 Year US Treasury has risen sharply over the past 2 months due to stronger than expected labor market, stronger than expected retail sales, higher than expected inflation data, and updated guidance from Fed officials. The market had been expecting multiple rate cuts in 2024 and this recent rise is essentially the market resetting expectations that rates will be higher for longer.


Since this is an election year, it was expected that the window for a rate cut would be mid-year, as the Fed does not want to cause market volatility too close to the November 2024 elections. However, given persistent inflation and economic strength, the market is no longer confident that there will be a rate cut in 2024.


We expect continued volatility and DSCR loan interest rates that are in the 7.25% to 8.5% range through the end of 2024. We are monitoring renewed concerns of regional bank liquidity crisis as a result of recent deterioration of New York Community Bank's balance sheet due to increased provisions for defaults in the multifamily sector. 2024 marks the beginning of a multi-trillion dollar wave of commercial real estate debt coming due -- much of which sits on the balance sheets of regional banks that are over-exposed to this now-distressed debt. Accordingly, we believe there will be a continuation of the regional banking crisis that began in early 2023 with the failures of Silicon Valley Bank, First Republic Bank, Signature Bank, and PacWest Bancorp.


We view current DSCR loan interest rates as fair and volatile. We view DSCR loans as highly attractive relative to other rental property financing options (bank loan, line of credit, conventional investment property loan) because the capital markets for DSCR loans remains healthy. We are advising our clients to consider selecting a lower prepayment penalty in order to opportunistically refinance if rates decline in the next few years. For more on this, learn about DSCR loan pros and cons.


DSCR loan interest rates are currently highly volatile, driven in large part by Fed policy uncertainty, inflation, stubbornly strong labor market and GDP growth, recession fears, and recent bank failures. The US Treasury yield curve is indicating that DSCR loan interest rates will remain elevated until the Federal Reserve brings inflation under control and stops increasing the Fed Funds Rate.


How to calculate DSCR Loan Interest Rate


DSCR Loan Interest Rate = 5 Year US Treasury + Borrower Credit Spread


  • 5 Year US Treasury ("risk free rate") = 4.049% (as of the 'Last updated' date at the top of the page)
  • Borrower Credit Spread ("risk premium") = 3.25% to 4.5% (depends on credit score, LTV, property type, experience and pre-payment penalty)


Note: index rates are based on 30 year fixed rate, fully amortizing, 1.1 DSCR or higher, 75% LTV on purchase or 70% LTV on cash out refi, 720+ credit score and a 5-4-3-2-1 prepayment penalty. Interest rates are an approximation based on best available nationwide private lender data for competitive rates. DSCR loan interest rates are lower at lower LTV and higher credit score.


Keeping track of DSCR loan interest rates used to mean filling out forms, calling and emailing multiple DSCR lenders. Now you can get instant DSCR loan quotes, and know that you are getting the lowest rate, lowest fees, and highest leverage, every time.


In line with our mission to be the most transparent and competitive DSCR lender for real estate investors of all experience levels, we are pleased to introduce the DSCR Loan Interest Rates Index, an index of prevailing DSCR loan interest rates for 30 year fixed rate fully amortizing DSCR Loans.


DSCR Loan Interest Rates Today


Current DSCR loan interest rates are displayed in the chart above. Rates are sensitive to several factors, so it's best to get a personalized instant quote.


DSCR loan rates today are based on the 5 Year US Treasury plus credit spread. As you will learn below, credit spread is deal, borrower and lender specific, though at OfferMarket, we are consistently pricing your credit spread in the 3.4% to 3.75% range as of the date that this article was last updated, depending on property location, property type, credit score, LTV and prepayment penalty.


DSCR loan interest rate quoting models weigh the following factors:


Borrower credit score


The higher your credit score, the lower your rate. Many rental property investors do not realize how sensitive DSCR loan quoting is to credit score.


Credit Score Interest Rate
760+ +0.0%
740 - 759 +0.05%
720 - 739 +0.1%
700 - 719 +0.15%
680 - 699 +0.25%
660 - 679 +0.50%

But credit score doesn't just affect your rate, it also impacts the loan amount (LTV) you qualify for.


Credit Score LTV (purchase) LTV (cash out refi)
720+ 80% 75%
700 - 719 75% 70%
680 - 699 70% 65%
660 - 679 65% 65%

Some of the capital providers that buy our loans will require a DSCR of 1.2 (instead of 1.1) for borrowers whose credit score is below 720. To see how that can affect your loan amount, use our handy DSCR calculator.


Takeaways:



Borrower experience


Some DSCR lenders do not work with 0 experience first-time investors. Among lenders that do work with new investors, it's not uncommon for max LTV to be reduced by 5% and interest rates to be slightly higher (0.1% - 0.2%).


While it's nice to be rewarded for experience, it can also be frustrating to be penalized for a lack of experience. Our DSCR loan program is designed to provide investors of all experience levels with the most competitive terms.


LTV


The higher your LTV, the higher your interest rate. This is because higher leverage means higher default risk. Lenders and credit investors are compensated for this higher risk by offering a higher interest rate.


LTV Interest Rate
80 +0.4%
75 +0.3%
70 +0.2%
65 +0.1%
60 +0.0%
Under 60 +0.0%

Loan amount


You may be surprised to learn that DSCR interest rates are affected by your loan amount. Private lenders want a higher interest rate to make it worth issuing a low value loan.


Loan Amount Interest Rate
$150,000+ +0.0%
$125,000 - $150,000 +0.1%
$100,000 - $125,000 +0.2%
$75,000 - $100,000 +0.3%
$50,000 - $75,000 +0.4%
Under $50,000 +0.5%

Prepayment Penalty


The longer the prepayment penalty period, and higher the prepayment penalty, the lower your interest rate.


Prepayment Penalty Interest Rate
5-4-3-2-1 +0.0%
3-2-1 +0.15%
3-0-0 +0.4%
1-0-0 +0.65%

Learn more about prepayment penalty options for DSCR loans.


Risk and Demand


As perceived risk and fear of inflation increases, DSCR loan interest rates increase. When lenders and institutional fixed income investors believe there is a higher risk of default due to housing market and economic weakness, a higher interest rate will be required in order to incentivize acceptance of that risk.


DSCR Loan Interest Rates - Inflation Risk Premium

Interest rates on DSCR loans




DSCR Loan interest rates:


  1. are correlated to the 30 year conventional fixed rate mortgage
  2. are affected by strength of DSCR (cash flow of your rental property) -- try our DSCR Calculator
  3. are affected by your real estate investing experience
  4. are affected by your credit score, which also can limit your loan amount (loan to value, "LTV")
  5. increase as LTV increases
  6. are priced at a premium to the 30 Year Conventional Fixed Rate Mortgage rate, and this "spread" varies based on the health of the fixed income markets

DSCR Origination Fees



Otherwise known as "points", origination fees are typically a percentage of loan amount. So if your private lender charges 2 points and your loan amount is $200,000, then your origination fee is $4,000. Please note that private lenders may also charge additional fees including "underwriting fee", "processing fee", "servicing fee", so do not be fooled by a low origination fee -- understand your lender's fees and compare terms from multiple lenders. Get DSCR Loan quotes in 2 minutes or less.


DSCR Calculator


Use our handy DSCR Calculator to determine DSCR for your next rental property purchase or refinance.



Learn more about DSCR loans from our friends at MyPerfectMortgage.