DSCR Loan Interest Rates

Last updated: November 7, 2024

Current DSCR Loan Rates

The 5 Year US Treasury, currently 4.18% 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 understands the Federal Reserve's rate cutting policy. Interest rates are ticking up slightly in response to the recent escalation of a multi-front war in the Middle East, devastation of Hurricane Helene, and a major dockworker strike. Crude oil is up over 5% this week as of this update, a signal this confluence of factors may be inflationary which can alter the Fed’s rate cut plans in a manner that would keep rates higher for longer.

The yield on the 5 Year US Treasury long with Fed Funds Futures contracts imply nearly 200 basis points (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 on elevated recession fears. We believe this forecast is fully priced into the 5 Yr 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.

• 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") = 4.18% (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 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 2.25% to 3.25% range for the vast majority of scenarios. As noted above, credit spread depends on several factors including credit score, LTV, DSCR, property type, property location, prepayment penalty and institutional credit investor demand.

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

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.

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