Real estate finance education
Prepayment Penalty Calculator
Find the year a step-down penalty stops being the expensive choice and starts being the cheap one.
Most DSCR loans charge a fee if you pay them off early. Removing that penalty usually costs a quarter to a half point on the rate. Which is cheaper depends entirely on how long you keep the loan.
- Weigh penalty against rate
- See the crossover year
- Model any exit
- Learn as you go
Loan & Penalty Details
Your Results
Removing the penalty costs less if you exit before year 5. From year 5 onward, taking the lower rate and keeping the penalty is cheaper.
Year by year
| Exit year | Balance | Penalty rate | Penalty if retained | Extra interest if removed | Cheaper option |
|---|---|---|---|---|---|
| Year 1 | $296,647 | 5% | $14,832 | $1,127 | Remove the penalty |
| Year 2 | $293,069 | 4% | $11,723 | $2,256 | Remove the penalty |
| Year 3 | $289,252 | 3% | $8,678 | $3,388 | Remove the penalty |
| Year 4 | $285,179 | 2% | $5,704 | $4,522 | Remove the penalty |
| Year 5 | $280,833 | 1% | $2,808 | $5,656 | Keep the penalty |
| Year 6 | $276,196 | None | $0 | $6,790 | Keep the penalty |
| Year 7 | $271,249 | None | $0 | $7,923 | Keep the penalty |
| Year 8 | $265,970 | None | $0 | $9,052 | Keep the penalty |
| Year 9 | $260,338 | None | $0 | $10,178 | Keep the penalty |
| Year 10 | $254,328 | None | $0 | $11,297 | Keep the penalty |
How this is calculated
The penalty column applies the schedule’s percentage for that year to either the remaining principal or the original loan amount, whichever your note specifies. The extra interest column runs a full month-by-month amortization at both rates and takes the difference, so it reflects the declining balance rather than a flat estimate.
A hard penalty applies whenever the debt is repaid, including a sale. A soft penalty generally applies only to a refinance. If you might sell, ask for a soft penalty specifically.
Some notes let you pay down part of the principal without triggering the charge, commonly up to 20% of the original balance in any twelve-month period. Confirm that allowance before planning extra payments. State law also restricts prepayment penalties in some places, and the rules can differ for an individual and an LLC.
This calculator is an estimate for planning. Lenders calculate DSCR in more than one way, and your quoted terms will depend on the full transaction.
DSCRLoans101 is an independent editorial site. We do not originate loans and we are not affiliated with any lender. Every figure on this page comes from published lender materials or primary sources, and we publish the date we verified it.