DSCR Prepayment Penalty Cost Analyzer
Quantify what your prepayment penalty actually costs at every possible exit year — and decide whether a no-PPP rate buydown is worth it for your hold strategy.
Model PPP cost at any exit year and compare a lower-rate + PPP loan vs a no-PPP loan with a rate premium.
Monthly P&I
$2,729
Balance at end of year 4
$382,684
PPP cost if exiting in year 4
$7,654
@ 2% of remaining balance
| Exit year | Remaining balance | PPP rate | PPP cost |
|---|---|---|---|
| Year 1 | $396,129 | 5% | $19,806 |
| Year 2 | $391,967 | 4% | $15,679 |
| Year 3 | $387,493 | 3% | $11,625 |
| Year 4 | $382,684 | 2% | $7,654 |
| Year 5 | $377,515 | 1% | $3,775 |
| Year 6 | $371,958 | 0% | $0 |
| Year 7 | $365,985 | 0% | $0 |
| Year 8 | $359,564 | 0% | $0 |
| Year 9 | $352,661 | 0% | $0 |
| Year 10 | $345,241 | 0% | $0 |
The rate you’d get if you chose a loan without a prepayment penalty.
Savings by choosing Scenario A
$408
Cumulative cost curve
Estimates only. Actual PPP language varies by lender. Confirm with your note.
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How DSCR prepayment penalties work
A prepayment penalty (PPP) is a fee the lender charges when you pay off the loan ahead of schedule — either by selling the property, refinancing, or paying extra principal above the curtailment allowance. On DSCR investment loans, PPPs exist because lenders sell these loans into securitizations (DSCR RMBS) and bond buyers price in an expected weighted-average life. When loans pay off early, the bond yield drops, so the PPP compensates investors for that lost income stream.
Unlike owner-occupied residential loans — where Dodd-Frank heavily restricts prepayment penalties — DSCR loans are business-purpose loans secured by non-owner-occupied 1-4 unit rentals, so they sit outside TILA/RESPA and the CFPB's Qualified Mortgage rules. That regulatory carve-out is why you see PPPs on virtually every DSCR quote.
The math in one paragraph
The penalty equals the remaining principal balance on the payoff date multiplied by the penalty percentage for that year of the loan. On a $400,000 loan at 7.25% for 30 years, the balance after 36 payments is roughly $387,000. If you carry a 5/4/3/2/1 structure and pay off in year 3, the penalty is 3% × $387,000 = $11,610. The calculator above runs this calculation for every exit year so you can see the real dollar impact.
PPP structures explained
5/4/3/2/1 step-down (the market default)
Five percent in year one, four in year two, three in year three, two in year four, one in year five, and zero after. This is the base pricing on almost every DSCR rate sheet and is what you get if you do not ask for anything else. It is the cheapest coupon the lender will offer.
3/2/1 step-down
Three percent in year one, two in year two, one in year three. Typically costs about 0.25–0.50% more in rate than the 5/4/3/2/1 but cuts your exit cost by more than half in years one and two. This is the pragmatic choice if you expect to refi within 3 years.
Hard 3 and hard 5
A flat penalty percentage for 3 or 5 years and then zero. A hard 3 at 3% is a lower year-one cost than the 5/4/3/2/1 (3% vs 5%) but does not step down — so year-three exits are no cheaper than year-one exits. Hard structures are sometimes offered in exchange for a modest rate discount when the lender wants yield-lock certainty.
No prepayment penalty
Pay a rate premium (usually 50–100 bps over the 5/4/3/2/1 coupon) in exchange for the flexibility to refi or sell at any time with no penalty. This is the right choice for BRRRR investors who plan to cash-out refi at month 6 or 12, and for fix-and-flip operators who are using DSCR as a bridge.
Custom schedules
Some portfolio lenders will negotiate bespoke schedules — for example, a 2/2/2 or a 4/3/2/1. Use the custom input in the calculator above to price any specific schedule your broker quotes you.
States that ban or restrict DSCR prepayment penalties
Although DSCR loans are business-purpose and exempt from federal consumer mortgage rules, several states impose their own restrictions. Expect DSCR lenders to drop or shorten the PPP when the subject property is covered by one of these rules:
| State | Scope (investor 1–4 unit) | Rule | Statute |
|---|---|---|---|
| Alaska | Banned | Loans covering 1–4 family dwellings may be prepaid without penalty, except federally insured loans that require one. No occupancy limit. | AS 45.45.010(g) |
| New Jersey | Banned | Loans on 1–6 unit dwellings above 6% interest may be prepaid without penalty. The borrower can be any person other than a corporation, so individuals and LLCs are generally covered. No occupancy test. | N.J.S.A. 46:10B-1, 46:10B-2 |
| New Mexico | Banned | PPP provisions in home loans and obligations secured by a real estate mortgage are unenforceable. No occupancy limit in the text; courts have held it preempted for national banks. | NMSA 1978 §56-8-30 |
| Minnesota | Restricted | On residential mortgage loans at or below the conforming limit: no penalty on partial prepayments or a sale, none after 42 months, capped at the lesser of 2% or 60 days' interest; barred on first-lien loans priced more than 3 points over comparable Treasuries. Applies whether or not the owner occupies. | Minn. Stat. §58.137, subd. 2 |
| Ohio | Restricted | Loans on 1–2 unit property: PPP capped at 1% of the original principal, none after 5 years. 3–4 unit loans fall outside. | Ohio Rev. Code §1343.011 |
| Pennsylvania | Restricted | No PPP on loans on 1–2 unit property at or below the annually adjusted base figure ($329,411 in 2026). No occupancy test; 3–4 unit and larger loans fall outside. | 41 P.S. §101, §405 (Act 6) |
| Rhode Island | Restricted | Loans on 1–4 unit dwellings: at most 2% in year one, none after. On refinances the borrower can agree in writing to a disclosed PPP lasting up to 60 months. | R.I. Gen. Laws §34-23-5 |
| Georgia | Owner-occupied only | Limits apply to high-cost home loans on the borrower's principal dwelling. | O.C.G.A. §7-6A-2, §7-6A-5 |
| Illinois | Owner-occupied only | Bars PPPs on residential loans above 8% APR, but loans to corporations and business loans (including investment) are excluded. | 815 ILCS 205/4(1)(a), (1)(c), (2)(a) |
| Massachusetts | Owner-occupied only | Caps PPPs (none after 36 months) on 1–4 family homes occupied in whole or in part by the borrower. | M.G.L. c.183 §56 |
| New York | Owner-occupied only | No PPP after year one on loans above 6% secured by a 1–6 family residence occupied by the owner. | N.Y. Gen. Oblig. Law §5-501(3)(b) |
| Texas | Owner-occupied only | Bars a PPP only on a homestead loan with a rate above 12%. | Tex. Fin. Code §302.102 |
| Vermont | Owner-occupied only | Bars PPPs generally, but exempts corporations and loans financing income-producing property other than a 1–4 unit dwelling the borrower lives in. | 9 V.S.A. §45, §46 |
Statutes checked October 1, 2026. Not legal advice: confirm the PPP terms with your lender.
If you are quoted a PPP on property in a state that bans them, ask the lender which exemption it relies on (New Jersey's rule excludes corporate borrowers, and courts have held New Mexico's preempted for national banks). In the restricted states the rule turns on unit count, loan size and loan type: Pennsylvania's covers only 1–2 unit loans under the base figure, and Rhode Island allows a consented PPP of up to 60 months on a refinance. Confirm current law with your lender.
Negotiating your PPP structure
Most investors accept whatever PPP comes on the first quote and miss the fact that prepayment is one of the most negotiable line items on a DSCR loan. Three levers to pull:
1. Pick the structure that fits your hold
If you are buying to hold for 10+ years, take the 5/4/3/2/1 and the lowest rate. The PPP will never apply. If you are uncertain, price the 3/2/1 and see if the rate bump is justified by your realistic exit probability. If you are BRRRR-ing, pay for no-PPP.
2. Ask for a buydown credit
You can often pay points at closing to buy down the PPP percentage or shorten its term. A 1-point buydown might convert a 5/4/3/2/1 into a 3/2/1 or add a same-lender refi waiver. Run the break-even in this calculator — if the buydown beats the expected PPP cost at your likely exit year, it pays for itself.
3. Negotiate the curtailment allowance
Most DSCR notes let you pre-pay up to 20% of the original principal per year without penalty. Some lenders will increase that to 25% or 30% on request, which gives you flexibility to apply lump sums from elsewhere in your portfolio without triggering the penalty.
Buydown math: when no-PPP is worth the rate premium
The simplest rule: compare your realistic exit month against thebreak-even month the calculator displays. If you will exit before break-even, pay the rate premium and take no-PPP. If you will hold past break-even, take the PPP and pocket the lower rate.
On a $400,000 loan, the difference between 7.25% (with PPP) and 7.75% (no PPP) is roughly $140/month — about $1,680/year — or $5,040 over three years. A 3% PPP on a $387,000 balance is $11,610. So if you exit in year 3, you save $11,610 − $5,040 = $6,570 by taking the no-PPP loan. But if you hold 10 years, you have spent $16,800 in rate premium and paid zero PPP either way — the lower rate wins.
When to use this calculator
- Before you lock: compare the 5/4/3/2/1 quote against the 3/2/1 and no-PPP alternatives your broker should be able to offer.
- Before you refinance: quantify the penalty you'd pay today to exit your current loan, and decide whether waiting another 6-12 months makes sense.
- Before you sell: if the buyer is assuming your loan, the PPP does not trigger. If you're paying it off, add the PPP to your net-sheet.
- Before you restructure: if you are consolidating multiple DSCR loans into a portfolio blanket loan, the PPP on each individual loan will trigger.
For a deep dive on rate-and-term vs cash-out decisions, see ourrate-and-term refinance guideand the refinance timing optimizerto see when the refi breakeven (including PPP) turns positive.