Securing the right financing is crucial for any real estate investor, and that includes finding the most competitive loan rates. When it comes to DSCR loans (Debt Service Coverage Ratio loans), understanding the factors that influence interest rates can help you make informed decisions and maximize your investment returns.
The 5-Year US Treasury Yield: DSCR loan rates are often tied to the 5-Year US Treasury yield, which serves as a benchmark for lending rates. When Treasury yields rise, DSCR loan rates tend to follow.
DSCR Ratio: Your DSCR (Debt Service Coverage Ratio) is a key factor in determining your interest rate. A higher DSCR indicates lower risk for the lender, which can result in a lower interest rate.
Credit Score: While DSCR loans are more flexible than conventional loans regarding credit scores, a higher credit score can still help you secure a better interest rate.
Loan-to-Value (LTV) Ratio: The LTV ratio is the loan amount divided by the property's appraised value. A lower LTV ratio generally means lower risk for the lender and may result in a lower interest rate.
Property Type: The type of property you're financing can also influence your interest rate. For example, loans for multi-family properties may have different rates than loans for single-family homes.
Loan Term: The length of your loan term can affect your interest rate. Longer-term loans may have slightly higher rates than shorter-term loans.
Prepayment Penalty: Some DSCR loans may have prepayment penalties, which can affect your overall cost if you decide to pay off the loan early.
