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Debt Service Coverage Ratio (DSCR): What It Is and How to Calculate It
Quick answer: The debt service coverage ratio is net operating income divided by yearly mortgage payments. Canadian banks and credit unions usually want a DSCR of at least 1.20 to 1.30 on commercial property; CMHC insured rental buildings and some B lenders accept about 1.10. In practice, DSCR rather than loan to value is often what limits how much you can borrow.
DSCR calculator
Enter the property's net operating income and the mortgage. The ratio shows how many times the income covers the yearly payments.
Debt service coverage ratio
1.21
Meets most conventional lenders' minimum of about 1.20 to 1.25.
What DSCR do lenders want?
| DSCR | What it means | Who lends |
|---|---|---|
| 1.30 and above | Strong cushion | Banks and credit unions on most property types |
| 1.20 to 1.30 | Typical minimum | Banks, credit unions and insurance company lenders |
| 1.10 to 1.20 | Thin | CMHC insured multi unit loans, some B lenders |
| Below 1.10 | Income barely covers payments | Private lenders, usually short term while income is improved |
How do you calculate DSCR step by step?
- Add up the yearly rent and other income, and take off a vacancy allowance.
- Subtract operating expenses: property tax, insurance, utilities, repairs, management and reserves. The result is net operating income (NOI).
- Work out the yearly mortgage payments, principal and interest.
- Divide NOI by the yearly payments.
Example: NOI of $150,000 and a $1,600,000 mortgage at 6% over 25 years ($123,700 a year) gives a DSCR of 1.21. Work out NOI with the cap rate and NOI calculator, then see the largest loan the income supports with the commercial mortgage calculator.
Why do lenders sometimes calculate a lower DSCR than you do?
- They use their own vacancy and management allowances, even if the building is full and you manage it yourself.
- Some test the payment at a rate above your contract rate, or at a fixed amortization such as 25 years.
- They count only leases in place, not expected rent increases.
A broker who knows each lender's method can place the loan where the numbers work. Rental buildings of five or more units may qualify for longer amortizations and a lower DSCR through CMHC MLI Select.
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Frequently asked questions
What is the debt service coverage ratio?
The debt service coverage ratio (DSCR) is a property's net operating income divided by its yearly mortgage payments. A DSCR of 1.25 means the income covers the payments one and a quarter times, leaving a 25% cushion.
What is a good DSCR for a commercial mortgage in Canada?
Most banks and credit unions want at least 1.20 to 1.30. CMHC insured multi unit loans and some B lenders accept about 1.10. Anything under 1.00 means the income does not cover the payments.
How do you calculate DSCR?
Take the net operating income (rents and other income, less vacancy and operating expenses, before mortgage payments) and divide it by the total principal and interest paid on the mortgage in a year.
What is a DSCR loan?
A loan approved mainly on the property's income coverage rather than the borrower's personal income. In Canada this describes most commercial and multi unit mortgages; the term is common in the US for investor loans.
How can I improve my DSCR?
Raise the income (rents, parking, fill vacancies), cut operating costs, borrow less, or lower the payment with a longer amortization or a lower rate. An insured multi unit program can allow a lower DSCR on rental buildings.
Is DSCR the same as GDS and TDS?
No. GDS and TDS measure a person's housing and debt payments against their income for home mortgages. DSCR measures a property's income against its own mortgage payments.
Want a lender's view of your numbers? Book an appointment with Asim Ali, ranked #4 in the CMP Top 75 Mortgage Brokers in Canada for 2026, or call 604‑591‑3590.