Interest-Only DSCR Loans: Lower Payments Now, Bigger Payments Later

An interest-only DSCR loan lets you pay just the interest for an initial period, then switches to payments that cover principal and interest. The lower early payment improves monthly cash flow and raises your debt service coverage ratio (DSCR). The cost is that you build no equity through paydown during that period and face a higher payment later.

How the structure works

A typical version spans 30 years, and the first stretch, often a few years or more, is interest only. During that time, your balance does not go down. When the period ends, the full balance is paid off over the remaining years, so the payment jumps.

The numbers

Example (illustrative only, not an RSC rate):

• Loan: $400,000 at 7%
• Taxes and insurance: $500 a month
• Rent: $3,600 a month

Same loan, same rent. The structure alone moves the ratio a lot. It also shows the catch: once the interest-only period ends, the payment can rise sharply.

How lenders use the interest-only payment

Some lenders calculate DSCR using the interest-only payment, which can help a borderline deal qualify. Others qualify you on the fully amortizing payment to be safe. Ask which one applies, because it can change your loan size.

When interest-only makes sense

• You care most about monthly cash flow right now
• You expect to sell or refinance before the payment resets
• Rents are expected to rise, or the property is still leasing up
• You want to put the savings toward reserves, improvements or the next down payment

The trade-offs

• Your balance stays flat until the interest-only years end
• A higher payment later, which can squeeze cash flow
• More interest paid in total by the time the loan is retired
• Less equity if values stay flat

A fully amortizing loan costs more each month but builds equity from the first payment. For comparison, RSC Private Lending's DSCR Rental program is a 30-year fixed loan, with rates from 6.750%, subject to change.

What this means for you

Interest-only is a cash flow tool, not free money. Use it when you know exactly what you will do once the interest-only years run out, and run the numbers on the higher payment before you commit.

Want to see how a 30-year fixed DSCR loan works on your rental? Send RSC Private Lending your scenario for a term sheet in 24 hours. All loans are business-purpose and subject to underwriting.