Debt yield and DSCR calculator
Test a loan against stabilised net operating income: debt yield, interest cover ratio and debt service coverage ratio, with a read on what lenders look for.
Once a scheme stabilises, the lender sizes and tests the loan against the income it produces. This calculator works out the three ratios that matter: the debt yield, the interest cover ratio on an interest-only loan, and the debt service coverage ratio if the loan amortises. Enter the stabilised net operating income, the loan and the rate, then choose interest-only or set an annual debt service. It updates as you type and tells you whether the cover sits where lenders usually want it.
- Annual interest£0
- Interest cover (ICR)0×
- Debt service cover (DSCR)n/a
- ICR read-
Indicative only. Not financial advice or an offer of finance.
The formulas and what lenders look for
- Debt yield = net operating income ÷ loan. A cash-return measure independent of the rate or the valuation. Lenders often look for around 8 to 10 percent or more.
- Annual interest = loan × interest rate.
- Interest cover ratio (ICR) = net operating income ÷ annual interest. Tests cover on an interest-only loan. Lenders commonly look for around 1.25 to 1.5 times or higher.
- Debt service coverage ratio (DSCR) = net operating income ÷ annual debt service. Tests cover where the loan amortises, so debt service is interest plus capital repayment.
Net operating income, or NOI, is the rent the scheme collects less the costs of running it, before finance costs, and it is effectively the property’s operating cash flow. Debt yield is the lender’s favourite sanity check because, unlike loan to value, it cannot be flattered by a tight yield or cap rate or a low interest rate. Interest cover and debt service cover then test whether that cash flow comfortably carries the debt. The thresholds above are indicative ranges that vary by lender, asset and the point in the cycle, and they are never a lending commitment. For how the income matures, see our stabilisation finance and investment term loan pages.
Debt yield and DSCR: common questions
How do you calculate debt service coverage ratio?
Divide net operating income by the annual debt service. If a scheme produces 600,000 pounds of net operating income a year and the annual debt service is 480,000 pounds, the debt service coverage ratio is 600,000 divided by 480,000, which is 1.25 times. A figure above 1.0 means the income more than covers the debt service.
What is a good debt service coverage ratio?
Lenders typically look for a DSCR of around 1.25 to 1.5 times on income-producing property, though the threshold varies by lender, asset and risk. A DSCR of 1.25 means income covers debt service 1.25 times over, leaving headroom. Lower ratios leave less margin if income dips. These figures are indicative, not a lending commitment.
What does a DSCR of 1.25 mean?
A DSCR of 1.25 means the net operating income is 1.25 times the annual debt service, so the income covers the debt and leaves a 25 percent buffer. If debt service is 100,000 pounds a year, the income is 125,000 pounds. The 25,000 pounds of headroom is what protects the lender if rent or occupancy falls.
What is debt yield and why do lenders use it?
Debt yield is net operating income divided by the loan amount, expressed as a percentage. It tells the lender the cash return the asset would produce on their loan if they had to take it over, independent of the interest rate or the valuation. Lenders often look for a debt yield of around 8 to 10 percent or more, because it does not flatter the loan when rates are low or yields are tight.
What is the difference between ICR and DSCR?
Interest cover ratio (ICR) divides net operating income by the annual interest only, so it tests cover on an interest-only loan. Debt service coverage ratio (DSCR) divides income by the full annual debt service, including any capital repayment, so it tests cover on an amortising loan. ICR is always equal to or higher than DSCR for the same loan, because debt service is interest plus any amortisation.
Related calculators and finance
Loan sizing calculator
Size the loan against LTV, LTC and LTGDV before you test the cover.
Open →Stabilised value calculator
Capitalise the same net operating income at a yield to estimate value.
Open →Investment term loans
The long-term debt sized on income cover that this calculator models.
Learn more →Testing whether a loan covers?
Send us the income and the structure and we will tell you how the cover reads to the lenders that back the sector.