DSCR Lenders with No Prepayment Penalty: Top Options for 2026

Real estate investors know that flexibility matters just as much as interest rates. When market conditions shift or better financing opportunities emerge, you want the freedom to refinance or sell without facing steep prepayment penalties. For investors using Debt Service Coverage Ratio (DSCR) loans, finding lenders that offer true flexibility can save thousands of dollars.

What Is a Prepayment Penalty and Why Does It Matter?

A prepayment penalty is a fee charged by lenders when you pay off your loan before the scheduled maturity date. These penalties exist because lenders expect to earn interest over the full loan term, and early payoff cuts into their projected profits.

For DSCR loans, prepayment penalties typically range from 1% to 5% of the outstanding loan balance and may apply during the first 1-5 years of the loan term. On a $500,000 loan, a 3% prepayment penalty would cost you $15,000 if you refinanced or sold the property early.

Why Investors Avoid Prepayment Penalties

Market Opportunity Costs: Interest rates fluctuate. If rates drop significantly after you close your loan, a prepayment penalty could prevent you from capturing substantial savings through refinancing.

Exit Strategy Flexibility: Fix-and-flip investors or those with shorter hold periods need the ability to sell properties without penalty once renovations are complete or market conditions favor selling.

Portfolio Optimization: As your real estate portfolio grows, you may want to consolidate multiple loans, refinance into commercial financing, or use cash-out refinancing to fund new acquisitions. Prepayment penalties restrict these strategies.

Cash Flow Management: Unexpected windfalls, successful property performance, or changes in your investment strategy may make early payoff attractive. Penalties turn what should be a positive financial move into a costly decision.

Top DSCR Lenders Offering No Prepayment Penalty Options

1. Visio Lending

Visio Lending stands out for offering DSCR loans with no prepayment penalty on select products. They cater specifically to real estate investors and understand the need for flexibility.

Key Features:

• No prepayment penalty available on certain loan programs
• DSCR ratios as low as 0.75 accepted
• Loan amounts up to $3 million
• 30-year fixed-rate options
• Nationwide lending

Best For: Investors who prioritize long-term flexibility and may refinance within the first few years.

Trade-offs: Rates on no-prepayment-penalty loans are typically 0.125% to 0.375% higher than comparable loans with penalties.

2. Kiavi (formerly LendingHome)

Kiavi offers bridge loans and DSCR products with flexible prepayment terms, including options with reduced or eliminated prepayment penalties.

Key Features:

• Short-term and long-term DSCR products
• Competitive rates for experienced investors
• Fast closing (as quick as 15 days)
• Strong customer service reputation

Best For: Investors with multiple properties who value speed and flexibility.

Considerations: Minimum DSCR requirements tend to be stricter (typically 1.0 or higher).

3. Anchor Loans

Anchor Loans provides DSCR financing with customizable prepayment terms, including no-penalty options for qualified borrowers.

Key Features:

• Flexible prepayment structures
• Portfolio lending capabilities
• DSCR as low as 0.8
• No personal income verification required
• Loan amounts up to $5 million

Best For: Portfolio investors managing multiple properties who need institutional-quality financing with flexibility.

Note: No-prepayment-penalty terms may require higher credit scores or larger down payments.

4. Lima One Capital

Lima One offers investor-focused loan products including DSCR loans with various prepayment structures, including penalty-free options.

Key Features:

• Nationwide coverage
• Streamlined application process
• Strong technology platform
• Experience with short-term rental properties

Best For: Investors in Airbnb or vacation rental markets who may need to pivot quickly.

5. Investor Loan Source

This lender specializes in DSCR loans and offers transparent pricing with clear prepayment terms.

Key Features:

• No prepayment penalty options clearly disclosed
• DSCR ratios starting at 0.75
• Experienced investor support team
• Competitive rates for strong borrowers

Best For: First-time DSCR borrowers who want clarity and straightforward terms.

Understanding Prepayment Penalty Structures

Not all prepayment penalties are created equal. Understanding the common structures helps you evaluate options:

Step-Down Penalties

These penalties decrease over time. For example:

• Years 1-2: 5% penalty
• Years 3-4: 3% penalty
• Year 5: 1% penalty
• Year 6+: No penalty

Advantage: You gain increasing flexibility as the loan ages.

Flat Penalties

A fixed percentage applies for a specific period, then drops to zero.

• Years 1-3: 3% penalty
• Year 4+: No penalty

Advantage: Simpler to calculate and understand.

Yield Maintenance Penalties

The most complex structure, calculated based on the difference between your interest rate and current market rates, plus the remaining loan term.

Disadvantage: Can be extremely expensive when interest rates fall.

Defeasance Penalties

Primarily used in commercial loans, this requires you to substitute government securities for the property as collateral.

Disadvantage: Complex and costly; rare in typical DSCR loans.

How to Negotiate No Prepayment Penalty Terms

1. Demonstrate Strong Financials

Lenders are more willing to waive prepayment penalties for borrowers who present lower risk:

• Credit scores above 720
• Significant cash reserves (6-12 months PITI)
• Low debt-to-income ratios
• Proven real estate investment experience

2. Accept a Slightly Higher Rate

Most lenders will offer no-prepayment-penalty terms in exchange for a rate increase of 0.125% to 0.50%. Calculate whether this trade-off makes sense based on your planned holding period.

Example: On a $400,000 loan at 7.5% vs. 7.75%, the monthly payment difference is about $60. Over three years, that's $2,160—significantly less than a potential 3% prepayment penalty of $12,000.

3. Increase Your Down Payment

Larger down payments (25%-30% vs. 20%) reduce lender risk and may unlock better terms, including prepayment flexibility.

4. Work with Lender Relationship Managers

For portfolio investors or repeat borrowers, building relationships with lenders can lead to customized terms. If you're bringing multiple properties or significant business to a lender, negotiate prepayment flexibility as part of the overall package.

5. Consider Portfolio Financing

When financing multiple properties simultaneously, you may have more negotiating power to secure favorable prepayment terms across the entire portfolio.

Calculating the True Cost of Prepayment Penalties

Before accepting a loan with a prepayment penalty, run the numbers:

Scenario Analysis

Property Details:

• Purchase price: $500,000
• Down payment: $100,000 (20%)
• Loan amount: $400,000
• Interest rate: 7.5%
• Prepayment penalty: 3% for years 1-3

Potential Scenarios:

Refinance in Year 2:

• Remaining balance: ~$387,000
• Prepayment penalty: $11,610
• Break-even calculation: New loan would need to save at least $386/month over 30 months to justify the penalty

Sale in Year 3:

• Remaining balance: ~$380,000
• Prepayment penalty: $11,400
• This reduces your net proceeds and return on investment

No-Penalty Alternative:

• Same loan at 7.75% rate
• Additional monthly cost: $62
• Total extra cost over 3 years: $2,232
• Savings vs. penalty: $9,168

This analysis shows that paying a slightly higher rate for prepayment flexibility provides significant value if there's any chance you'll refinance or sell within the penalty period.

Questions to Ask DSCR Lenders About Prepayment

Before committing to any DSCR loan, get clear answers to these questions:

1. Is there a prepayment penalty, and if so, what is the structure?
2. What is the rate difference between loans with and without prepayment penalties?
3. Does the prepayment penalty apply to partial paydowns or only full payoffs?
4. Are there any exceptions to the prepayment penalty? (Some lenders waive penalties for property sales vs. refinances)
5. Can the penalty be negotiated based on my financial profile?
6. Is the penalty calculated on the original loan amount or remaining balance?
7. How is the penalty disclosed in the loan documents?

Red Flags to Watch For

Hidden Prepayment Clauses

Some lenders bury prepayment terms in loan documents. Always review the Note and Deed of Trust carefully, and don't rely solely on verbal assurances.

"Soft" Prepayment Penalties

Some lenders claim to offer "no prepayment penalty" but include clauses that effectively penalize early payoff through other fees or rate adjustments. Read the fine print.

Bait-and-Switch Tactics

Be wary of lenders who quote great rates but switch to loans with prepayment penalties at closing. Lock in your terms in writing early in the process.

Strategic Considerations for Different Investor Types

Fix-and-Flip Investors

Even though DSCR loans are typically long-term products, some flippers use them for properties they plan to rent short-term before selling. For this strategy, no-prepayment-penalty terms are essential.

Recommendation: Consider bridge loans or hard money for true flips, but if using DSCR financing, insist on no prepayment penalties.

Buy-and-Hold Investors

If you plan to hold for 10+ years, a modest prepayment penalty for the first 3-5 years may be acceptable in exchange for a lower rate.

Strategy: Evaluate your likelihood of refinancing based on interest rate environment and property performance projections.

Portfolio Scalers

Investors rapidly building portfolios often use cash-out refinances to fund new acquisitions. Prepayment flexibility is crucial.

Recommendation: Prioritize no-prepayment-penalty loans even if rates are slightly higher, as the ability to refinance and access equity drives portfolio growth.

Airbnb/Short-Term Rental Investors

Market conditions for short-term rentals can shift quickly (regulations, demand changes). Flexibility to pivot—including selling or refinancing—is valuable.

Best Practice: Opt for no prepayment penalties given the volatility in this investment niche.

The Bottom Line

Prepayment penalties can significantly impact your real estate investment returns and limit your strategic flexibility. While loans with prepayment penalties often offer slightly lower interest rates, the potential costs and lost opportunities usually outweigh the marginal savings.

For most investors, particularly those building active portfolios or operating in dynamic markets, DSCR loans without prepayment penalties provide the best combination of competitive financing and strategic flexibility. The modest rate premium—typically 0.125% to 0.375%—is cheap insurance against changing market conditions and evolving investment strategies.

When evaluating DSCR lenders, prioritize those offering transparent prepayment terms, clear pricing on no-penalty options, and flexibility that aligns with your investment timeline and goals. The right lender views you as a long-term partner and structures financing to support your success, not trap you in unfavorable terms.

By focusing on lenders like Visio Lending, Kiavi, Anchor Loans, Lima One Capital, and Investor Loan Source, you can access competitive DSCR financing without sacrificing the flexibility that successful real estate investing demands.