Commercial Loan Sizing Calculator (LTV, DSCR and Debt Yield)

How it works

Loan constant K = 12 × i ÷ (1 − (1 + i)⁻ⁿ) · max by LTV = LTV × value · max by DSCR = NOI ÷ (DSCR × K) · max by debt yield = NOI ÷ minimum debt yield · maximum loan = the smallest of the three

Commercial and multifamily lenders size a loan with several tests and lend the lowest result. Loan-to-value limits the loan to a share of the appraised value; the debt service coverage ratio requires NOI to exceed the annual payment by a margin (typically 1.20×–1.35×); and the debt yield — NOI divided by the loan — sets a minimum return to the lender regardless of rate or amortization (often 8%–10%). When rates rise, the DSCR test usually becomes the binding one.

Worked example

A property with 150,000 NOI worth 2,000,000, financed at 6.5% over 25 years (loan constant 8.102%): the 75% LTV test allows 1,500,000; the 1.25× DSCR test allows 150,000 ÷ 1.25 ÷ 0.08102 = 1,481,026.95; the 9% debt-yield test allows 1,666,666.67. The DSCR test binds, so the maximum loan is 1,481,026.95 (74.05% LTV, 10,000 a month, 10.13% debt yield).

Sources: Investopedia — Debt yield · Investopedia — Debt-service coverage ratio (DSCR)

Frequently asked questions