When financing investment properties with a DSCR (Debt Service Coverage Ratio) loan, you have access to a variety of loan terms tailored to different investment goals — from long-term buy-and-hold strategies to flexible short-term options.
🧭 Overview of DSCR Loan Terms
DSCR loans are designed for real estate investors, so the loan structure focuses on cash flow, leverage, and flexibility — not traditional employment income.
You can choose from multiple fixed and adjustable-rate options, and some programs even offer interest-only periods to maximize monthly cash flow.
🏦 Common Loan Term Options
Loan Type | Typical Term | Description |
30-Year Fixed Rate | 30 years | Stable monthly payments; ideal for long-term holds. |
40-Year Interest-Only | 40 years (10 years interest-only) | Lower monthly payments; maximizes cash flow early on. |
5/1 ARM | 30 years | Rate fixed for first 5 years, then adjusts annually. |
7/6 ARM | 30 years | Hybrid adjustable option with slightly better starting rate. |
10/6 ARM | 30 years | Fixed for 10 years, adjusts semiannually thereafter. |
This is a tip.
If you plan to refinance or sell within 5–10 years, an ARM (Adjustable Rate Mortgage) can offer lower starting rates and higher flexibility.
💡 Interest-Only Options
Many DSCR lenders offer interest-only periods (usually 5–10 years) before amortization begins.
This feature helps investors keep payments low during the early years, when cash flow is most important.
Benefits of Interest-Only Terms:
Boosts property cash flow and DSCR ratio
Helps build liquidity for future investments
Useful for investors planning to refinance or sell after renovations or appreciation
📊 Amortization Options
DSCR loans can be fully amortized or partially amortized depending on the lender’s program.
Fully Amortized – Pay both principal and interest for the life of the loan
Partially Amortized – Pay interest + some principal, with a balloon payment at the end
Interest-Only Transition – Start interest-only, then convert to fully amortized after 5–10 years
⚙️ Prepayment and Flexibility
Some DSCR loans include prepayment penalties, typically lasting 1–5 years.
These can often be structured as:
Step-down penalties (e.g., 5%, 4%, 3%, 2%, 1%)
No prepay options available at slightly higher rates
Custom term lengths for experienced investors or portfolio refinances
🧠 Choosing the Right Term
Selecting the best DSCR loan term depends on your investment strategy:
Long-term rental hold: Choose 30- or 40-year fixed for stability
Short-term or mid-term exit: Consider a 5/1 or 7/6 ARM for lower rates
Cash flow focused: Go for interest-only options to maximize monthly income
Having multiple term structures available allows investors to fine-tune their loan to match both property performance and portfolio strategy.