DSCR Loan Interest Rates

Last updated: December 12, 2024

Current DSCR Loan Interest Rates

DSCR Loan Update - December 2024

The 5-Year US Treasury, currently at 4.17% 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 and the market better understands the Federal Reserve’s rate-cutting policy. Given the current strength of the US economy and consumer as indicated by most recent economic data, we expect DSCR loan interest rates to remain elevated at or near 7% for the foreseeable future (6 to 12 months).

The yield on the 5-Year US Treasury, along with Fed Funds Futures contracts, implies nearly a 200 basis point (bps) or 2% reduction in the Fed Funds Rate by July 2025, which would bring the Fed Funds Rate from 5.5% to 3.5%. In other words, the market expects aggressive rate cutting over the next 12 months due to elevated recession fears. We believe this forecast is fully priced into the 5-Year US Treasury, and we also believe that historically low credit spreads will likely increase if there is a recession or anything other than a “soft landing” for the economy. DSCR loan interest rates may be directly impacted by these changes in credit spreads and market conditions, making it crucial for investors to stay informed about potential fluctuations in borrowing costs.

• we view current DSCR loan interest rates as attractive 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.

• given geopolitical tensions, market concerns that the incoming presidential administration's economic policy involving tariffs will be inflationary, and market sensitivity to Fed guidance and economic data, expect continued volatility and DSCR loan interest rates and interest rates more broadly to remain elevated into 2025.

DSCR loan interest rates are currently highly volatile, driven in large part by Fed policy uncertainty, lingering inflation concerns, stubbornly strong economy and labor market, and geopolitical tensions. The US Treasury yield curve is indicating that DSCR loan interest rates will remain elevated well into 2025.

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") = 4.08% (as of the 'Last updated' date at the top of the page)
• Borrower Credit Spread ("risk premium") = 2.25% to 4.5% (depends on several factors including credit score, LTV, DSCR, property type, property location, prepayment penalty, institutional credit investor demand)

Note: index rates are based on 30 year fixed rate, fully amortizing, 1.1 DSCR or higher, 80% LTV on purchase or 75% 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 interest rates today are based on the 5-Year US Treasury plus a credit spread. As you will learn below, the credit spread is deal-, borrower-, and lender-specific. However, at OfferMarket, we consistently price your credit spread in the 2.25% to 3.25% range for the vast majority of scenarios. As noted above, the credit spread depends on several factors including credit score, LTV, DSCR, property type, property location, prepayment penalty, and institutional credit investor demand. These variables all play a critical role in determining the overall DSCR loan interest rates you will receive.

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.

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

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:

• protect and optimize your credit score
• stop using credit cards for your rehab projects -- Pro tip: take advantage of our Fix and Flip loans with Advanced Draws
• learn about the tri merge credit report

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.

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.

Prepayment Penalty

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

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.

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 and Their Impact on DSCR Loan Interest Rates

Otherwise known as “points,” origination fees are typically a percentage of the loan amount. So if your private lender charges 2 points and your loan amount is $200,000, your origination fee would be $4,000. Please note that private lenders may also charge additional fees, including an “underwriting fee,” “processing fee,” and “servicing fee.” So, do not be fooled by a low origination fee—make sure you understand your lender’s fees and compare terms from multiple lenders. To get a clear picture of DSCR loan interest rates, you can 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.

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