A DSCR loan qualifies on the property: the rent divided by principal, interest, taxes, insurance and HOA dues. You cannot shrink the taxes or the insurance by choosing a different loan. The one piece you can shrink is the principal and interest line, and interest only takes the principal out of it for a set number of years. That is the whole trick, and it is why interest only shows up on so many deals that are close.

Every number in this post is either a program term we can place, a reference rate from Freddie Mac's survey, or an example. The example numbers are labeled. None of it is a quote.

What interest only does to the ratio

It raises the ratio by lowering the payment, and the effect gets bigger as the loan gets bigger.

Here is one rental, written out. Rent is $2,300 a month. Taxes are $300 a month and insurance is $150, with no HOA. The loan is $300,000. Freddie Mac's 30 year fixed average of 7.24% from October 29, 2026 stands in for the rate. That survey tracks conventional loans, not DSCR loans, and it is not a rate we are offering. These are example numbers, not market data and not a quote.

Same house, same rent, same tax bill. The only change is that no principal is being paid down, and the rent now covers the full payment.

One detail to settle early: the calculator on this page and our state pages measure the ratio on the interest only payment during the interest only years. We confirm how the lender on your file measures it before you count on that number, because that is the number the approval turns on.

The savings scale with the loan amount. At the same reference rate, interest only saves about $156 a month on a $200,000 loan ($1,363 down to $1,207), about $234 on $300,000, and about $390 on $500,000 ($3,407 down to $3,017).

Interest only does not make a bad rental good. It buys a close deal room to breathe while the rent catches up.

The two interest only options

We place interest only two ways: 10 years interest only on a 40 year term, or a 30 year term with interest only.

• 40 year term, first 10 years interest only. You pay interest only for a decade. Then the loan amortizes over the remaining 30 years. This is the structure most investors ask about, because the payment after the interest only years ends up where a 30 year fixed would have started.
• 30 year term with interest only. Total term stays at 30 years. Because the amortizing years that follow the interest only period are fewer, the payment after it ends is higher than it would be on the 40 year version. The length of the interest only period on this option is confirmed per file.

Which one fits depends on how long you plan to hold, how close the deal is to 1.00, and how much the payment can rise later without hurting you. That is a conversation, not a formula, and it is one of the first things we work through on a call.

What happens when it ends

The payment goes up, and you should plan for that on day one.

On the 40 year structure with a $300,000 loan, the interest only payment is about $1,810 for ten years. In year eleven the full $300,000 starts amortizing over the 30 years left, and at the same 7.24% the payment becomes about $2,044. That is $234 a month more, the same principal and interest a 30 year fixed would have charged from the start. In the example above, the ratio at that point drops back to 0.92 unless the rent has grown.

Two things soften that. Rents usually move over a decade, so the house that needed interest only in year one may not need it in year eleven. And nothing stops you from paying principal early if the cash flow allows, which lowers the balance that resets. Neither is a guarantee. Underwrite as if rent stays flat and see if you can live with the reset payment.

What you give up

You give up equity paydown. Ten years of amortizing payments build real principal, and interest only builds none.

Example numbers at the 7.24% reference rate, not a quote. Over ten years interest only keeps about $28,139 more cash in your pocket, and leaves you owing $41,128 more. If the house appreciates, that matters less. If it does not, you are counting on the rent and the cash flow alone.

Run the DSCR on your deal

The LTV limits

Interest only tops out at 70% LTV on a purchase or rate and term refinance, and 65% on a cash out refinance.

In plain numbers, a $300,000 interest only loan on a purchase needs a price of at least about $428,600, which is 30% down. On a cash out refinance, the same $300,000 needs an appraised value of at least about $461,500. Those are tighter than the regular cash out limit of 80% LTV, so if you are pulling cash, decide whether you want the bigger check or the lower payment. You usually cannot have the maximum of both.

The other terms do not change with interest only: ratios as low as 0.50, no reserves when the loan is under $1 million and the LTV is under 75%, no asset sourcing or seasoning, a 100% gift allowed for the down payment, closing costs and reserves, and first time investors with no primary residence or rental history required. Loans go up to $5 million.

When I would use it

I would use it when the deal is close, the hold is long, and the reason it is close is something that will not last forever.

1. Heavy tax states. Where taxes take a big share of the rent, interest only is often what gets a solid rental over 1.00. We ran that math on Texas property taxes and DSCR, and in a single metro on San Antonio rental property.
2. A refinance after a rehab. If you bought, fixed and are pulling cash back out, interest only can protect cash flow while the rent seasons. Keep the 65% cash out limit in mind. Our guide to the BRRRR method with a DSCR loan walks through that refinance.
3. Higher priced rentals. The savings grow with the loan, so a $500,000 loan saves about $390 a month at the reference rate.
4. A known exit. If you plan to sell or refinance well inside ten years, the reset may never reach you.

When I would skip it

I would skip it when the deal only works on interest only and has no path to work any other way.

Skip it too if building equity is the point of the purchase, or if you already know you would struggle with a higher payment later. A 30 year fixed is boring, and boring is fine on a rental you plan to keep. If you are self employed and want a home you will live in rather than a rental, that is a different loan, and a bank statement loan in Arizona may fit better. Our full list is on the loan programs page.

Four questions before you choose it

Answer these honestly and the choice usually makes itself.

• Does the deal clear 1.00 on a 30 year fixed? If yes, interest only is a cash flow choice, not a qualifying need.
• How long will you hold? Under ten years on the 40 year option, the reset may never matter to you.
• Can you carry the reset payment on today's rent? If not, you are betting on rent growth.
• What will you do with the monthly savings? Reserves, repairs or the next down payment are good answers.

Where we place it

We place DSCR loans in 35 states, and each state page has local rents, local rules and its own calculator, so you can run the interest only math on the market you are actually buying in.

A few to start with: DSCR loans in Texas, Ohio, Georgia, North Carolina, Tennessee, Indiana, Michigan and Arizona. The full list is below the FAQ.

Sources

All sources checked November 4, 2026. Data changes, so confirm before you rely on it.

1. Freddie Mac Primary Mortgage Market Survey. 30 year fixed average 7.24% as of October 29, 2026 (reference only; not a DSCR rate and not a Pillar Mortgage Group rate)
2. Pillar Mortgage Group DSCR program terms. Interest only: 10 years on a 40 year term, or a 30 year term with interest only; 70% LTV purchase or rate and term, 65% cash out; cash out up to 80% LTV; DSCR as low as 0.50; loans up to $5 million
3. Payment, balance and ratio figures. Our arithmetic on example numbers using standard amortization formulas at the 7.24% reference rate; example numbers, not market data and not a quote

Frequently asked questions