DSCR
Rate and Term Refinance

A DSCR (Debt Service Coverage Ratio) rate and term refinance is a type of investment mortgage refinance where the lender evaluates the property’s cash flow to determine the loan’s interest rate and loan term. In a DSCR refinance, the lender considers the property’s net operating income (NOI) and annual debt service payments to calculate the loan-to-value ratio (LTV) and interest rate.

To qualify for a DSCR refinance, the property’s NOI must be able to cover at least 1.25 times the annual debt service payments. This means that the property’s cash flow must be sufficient to cover the loan’s interest and principal payments, as well as other expenses such as taxes, insurance, and maintenance.

The interest rate and loan term for a DSCR refinance are determined by the borrower’s creditworthiness, the property’s cash flow, and the loan-to-value ratio. The loan term can range from 5 to 30 years, depending on the specific terms of the refinance.

One of the main benefits of a DSCR refinance is that it allows borrowers to secure a lower interest rate and longer loan term than they might otherwise qualify for with a traditional investment mortgage. This can result in lower monthly payments and more cash flow available for other business expenses.

DSCR underwriting can be more complex and time-consuming than traditional financing, as they require a thorough analysis of the property’s financials and cash flow. Additionally, the interest rates and loan terms may be higher than those available for loans with higher credit scores or stronger financials.

A Debt Service Coverage Ratio rate and term refinance can be a good option for investment property owners who need to refinance their mortgage, but may not qualify for traditional refinance options due to their ability to demonstrate income through traditional means.