Commercial loan sizing and DSCR

Estimate how much a property's income can support, before you take it to lenders.

Net operating income (NOI) / yr

Rental income less operating expenses, before financing.

Target DSCR

The income cushion lenders want over the payment.

Interest rate (%)

Amortization (years)

Property value / price

Used to apply the LTV cap and show cap rate.

Maximum LTV (%)

Estimated maximum loan (lower of DSCR and LTV)

Supportable annual debt service$0

Estimated monthly payment$0

DSCR-limited loan$0

LTV-limited loan$0

Binding constraint-

Implied loan-to-value (LTV)-

Cap rate (NOI / value)-

Whichever is lower sets your loan. In higher-value, lower-cap-rate deals, LTV often binds first. Insured (CMHC) and conventional deals use different DSCR floors and amortizations.

Talk to us

For illustration only and not an offer of financing, a commitment, or a guarantee of loan amount. Commercial loans are sized on lender-reviewed NOI, the DSCR and amortization the lender applies, LTV caps, the asset and sponsor, and whether the deal is insured or conventional, which can differ materially. Estimates assume Canadian semi-annual compounding and an interest-only-of-DSCR sizing approach for illustration. Speak with us for a real assessment. TMG HarbourTown Mortgage Inc., Licence #3000145.

What these numbers mean

Plain-language definitions and the typical ranges, so you can play with the inputs with confidence.

Net operating income (NOI): Rental and other income from the property less operating expenses (taxes, insurance, utilities, maintenance, management, reserves), before any mortgage payment. It is the cash the property throws off to service debt, so it drives almost everything a commercial lender does.
Typical: lenders underwrite on reviewed NOI, not your pro forma; vacancy, reserves, and management are usually added back in even if you self-manage.
DSCR (debt service coverage ratio): NOI divided by annual mortgage payments. It is the income cushion above the payment. A higher target DSCR means the property must clear more income, which lowers the loan it supports.
Typical: 1.20 to 1.30 on conventional commercial; lower under CMHC MLI Select, often around 1.10.
Interest rate and amortization: The rate prices the debt; the amortization is the years used to spread the payment. A longer amortization lowers the annual payment, so the same NOI supports a larger loan. Commercial terms are often shorter than the amortization, which leaves a balance owing at term end.
Typical: conventional commercial amortization up to 25 to 40 years; CMHC and MLI Select can run longer. Calculations use Canadian semi-annual compounding.
Maximum LTV (loan-to-value): The largest loan a lender will advance as a percent of value or price. Even when the income supports more, the LTV cap can set the loan instead. That is the binding-constraint logic below.
Typical: conventional commercial often up to 75 percent; CMHC standard up to 85 percent; MLI Select up to 95 percent.
Binding constraint (DSCR vs LTV): The smaller of the DSCR-limited loan and the LTV-limited loan wins. In higher-value, lower-cap-rate deals the value supports plenty but the income does not, so DSCR binds; in higher-income deals the LTV cap often binds first.
Typical: knowing which one binds tells you whether to chase income, price, or a different lender program.
Cap rate (NOI / value): NOI divided by the price or value, as a percent. A quick yardstick for how richly a property is priced relative to its income. It is not an appraisal and lenders use their own reviewed value.
Typical: varies widely by asset class, location, and condition; a lower cap rate means a higher price for the same income.

These are general ranges, not your numbers. The right figure depends on your situation, the property, and the lender. Talk to us and we will pin it down.