Quick answer
An interest-only (IO) DSCR loan lets you pay only interest for an initial period, then switches to amortizing payments. IO lowers the early payment and can raise your DSCR, but most wholesale lenders add a pricing adjustment for it, and some calculate qualifying DSCR on the amortizing payment instead.
How an interest-only period works
During the IO period your payment covers interest only, so the loan balance does not decline. When the period ends, the remaining balance amortizes over the remaining term, which means the payment steps up — often noticeably, because the principal is being repaid over fewer years.
Effect on DSCR
Because the IO payment is lower, the DSCR calculated on that payment is higher. That can help a property qualify or reach a better coverage tier. However, some lenders qualify on the higher amortizing payment regardless, so the benefit to eligibility is not universal.
How IO is priced
Interest-only is typically treated as an added risk feature: the balance is not being paid down during the IO years, so the lender’s equity cushion does not grow on its own. Many grids carry an IO adjustment, and some limit maximum LTV for IO loans.
Whether IO is worth it depends on what you do with the cash-flow difference. Investors who redeploy that cash into higher-returning uses often find the trade worthwhile; investors who simply want to build equity usually prefer amortizing.
Plan for the step-up
Make sure the property still works at the post-IO payment, or that you have a plan to refinance or sell before then — remembering that a prepayment penalty may still apply. Our calculator lets you toggle between the two payment types to see both ratios.
Which way it moves your quote
| Change | Typical direction | Why |
|---|---|---|
| Choosing interest-only | ▲ Tends to cost more | Commonly carries a pricing adjustment. |
| IO payment used in DSCR | ▼ Tends to improve pricing | A lower payment raises the ratio. |
| IO at high leverage | ▲ Tends to cost more | Risk features compound. |
Directions describe general tendencies across wholesale lender pricing grids. Actual adjustments vary by lender and change with the market. DSCR Rates does not publish rates.
Questions about interest-only
Does interest-only always help me qualify?
Not always. Some wholesale lenders calculate DSCR using the interest-only payment, and others require the amortizing payment. We check how each lender handles it.
What happens when the interest-only period ends?
The payment resets to fully amortize the remaining balance over the remaining term, which increases it. Plan for that payment from the start.