How Rate Changes Ripple Through a Deal: Cash Flow, DSCR and Exit
A rate move doesn't just change the payment. It changes cash flow, the DSCR a lender sees and what your exit looks like. Here's one rental at three rates.
Short answer
Each point of interest rate changes a rental's payment, which flows straight into cash flow and DSCR. On a $320,000 loan, moving from 6.5% to 8.5% adds about $438 a month, turning positive cash flow negative and pushing the DSCR below 1.0. Stress-testing at a higher rate shows whether a deal has room.
Key points
- Each point moves the payment, cash flow and DSCR.
- Stress-test every deal one point higher.
- Rates also affect buyers and your exit price.
One rental at three rates
Deal sheet: $320,000 loan, $2,900 rent, $500 taxes and insurance, illustrative
| 6.5% | 7.5% | 8.5% | |
|---|---|---|---|
| Principal and interest | $2,023 | $2,237 | $2,461 |
| Total payment (PITIA) | $2,523 | $2,737 | $2,961 |
| Cash flow before other costs | $377 | $163 | −$61 |
| DSCR | 1.15 | 1.06 | 0.98 |
Between 6.5% and 8.5% the payment rises about $438 a month. Cash flow before vacancy, repairs and management falls from $377 to slightly negative, and the DSCR drops below 1.0.
Where else rates show up
- Qualifying: a lower DSCR can mean a smaller loan or a larger down payment; see what DSCR you need.
- Refinancing: cash-out and rate-and-term math changes with every move; see rate-and-term refinancing.
- Exit value: higher rates can soften what buyers will pay, especially for income properties.
Want this math on your own deal? Send the loan amount and rent and we'll run it. Run my numbers
Stress-test before you buy
Run every deal at today's rate and one point higher. If it only works at the lower rate, it has no cushion. The usual tools are a larger down payment, a rate buydown or a structure that fits your hold; see fixed or adjustable for rentals and what half a point does to your payment.
Frequently asked questions
How much does a 1% rate increase change a rental payment?
On a 30-year loan around 7%, roughly $67 to $70 a month for every $100,000 borrowed. On this $320,000 example, about $215 to $223 a month per point.
How do interest rates affect DSCR?
Higher rates raise the payment, which lowers the DSCR. In this example, moving from 6.5% to 8.5% takes the ratio from 1.15 to 0.98.
How do I stress-test a rental property?
Run the numbers at today's rate and one point higher, with realistic vacancy and repair costs. If the deal only works at the lower rate, it has little cushion.
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