Investor loans commonly have a step-down prepay: 5-4-3-2-1 (5% in year 1, 4% in year 2, and so on). Buying out the prepay adds ~0.25–0.50% to your rate. Never accept a prepay you don't understand — it can cost tens of thousands on a refi or sale.
Loan Mechanics
Prepayment Penalty
A fee charged if you pay off a loan early — usually within the first 3–5 years.
More in Loan Mechanics
- DSCR (Debt Service Coverage Ratio)— The ratio of a property's net operating income to its debt payments — a 1.25 DSCR means th…
- LTV (Loan-to-Value)— Loan amount divided by the property's appraised value, expressed as a percent.
- LTC (Loan-to-Cost)— Loan amount divided by total project cost (purchase + rehab).
- ARV (After-Repair Value)— The projected appraised value of a property after planned renovations are complete.
- DTI (Debt-to-Income Ratio)— Your total monthly debt payments divided by gross monthly income.
- APR (Annual Percentage Rate)— The all-in yearly cost of a loan, including interest rate plus most fees.