DSCR RATE & TERM REFINANCE
Essential Elements

A DSCR (Debt Service Coverage Ratio) Rate and Term Refinance is a refinancing option that allows real estate investors to modify the interest rate or term of their current loan based on the income generated by the property. This refinance option doesn’t allow for cash-out but focuses on adjusting the loan terms to improve cash flow, reduce debt payments, or achieve a lower interest rate.

What DSCR Represents
The DSCR measures the property’s ability to cover its debt payments with its income. It’s calculated by dividing the property’s net operating income (NOI) by its debt payments.

Qualification Standards
Lenders typically require a DSCR of at least 1.25, meaning the property’s income should be 1.25 times the debt payments. A higher DSCR indicates stronger cash flow and makes it easier for borrowers to qualify.

Lowering Interest Rates
One of the main benefits of a DSCR rate and term refinance is the potential for a lower interest rate, which can reduce monthly debt payments and increase the property’s cash flow.

Fixed vs. Adjustable Rates
Investors can choose a fixed or adjustable rate, depending on market conditions and their risk tolerance. Fixed rates offer stability, while adjustable rates may offer lower initial payments.

Term Extension for Lower Payments
Extending the loan term can decrease monthly payments, improving cash flow, although it may result in higher total interest paid over the life of the loan.

Shortening the Loan Term
Shortening the term can help pay off the loan faster and reduce total interest costs, which can be advantageous for investors looking to build equity quickly.

Property-Based Qualification
DSCR refinancing places primary emphasis on the income-generating potential of the property, not the borrower’s personal income or employment history. This makes it an ideal option for investors who may not meet standard income documentation requirements.

Easier Access for Investors
With a focus on property income rather than personal income, investors with complex finances or multiple properties can qualify more easily.

No Cash-Out
Unlike a DSCR cash-out refinance, this type of refinancing does not allow for withdrawing additional funds from the property’s equity. The loan amount remains limited to the existing balance, focused on achieving a better rate or more favorable terms.

Simplified Approval Process
Since the primary consideration is the property’s income, DSCR rate and term refinancing requires fewer personal financial documents, often making it a quicker and easier approval process.

No Personal Income Verification
DSCR refinancing typically doesn’t require income verification or tax returns, which can be advantageous for self-employed or non-traditional income earners.

Is a DSCR Rate and Term Refinance Right for You?
A DSCR rate and term refinance is ideal for investors seeking to optimize the loan terms based on property income rather than personal finances. This refinance can improve monthly cash flow and reduce long-term debt costs without tapping into the property’s equity, making it particularly appealing for long-term investors looking to maximize ROI while maintaining a streamlined approval process.