Enter the interest rate, term length, and amount of loan, along with the net operating income resulting from that debt into the DSCR calculator. The calculator will display the debt to service coverage ratio.
Debt to Service Ratio Formula
The following formula is used to calculate the debt to service ratio.
DSCR = NOI / MP
- Where DSCR is the debt to service ratio
- NOI is the net operating income that results from that debt
- MP is the monthly payment made on the debt.
This formula assumes the debt is a typical loan with a set term, amount, and interest rate. If the debt is not fixed, this formula becomes much more complicated and could change depending on the changing terms.
How to calculate a debt to service ratio
- First, determine the NOI
NOI stand for net operating income. Typically when calculating the DSCR, the net operation income is only the income that results from the products or services that were directly bought with that debt.
- Next, determine the debt payments
This should be the total debt amount divided by the total months of the term of the loan. Of course interest should be factored in as well.
- Finally, calculate the DSCR
Using the NOI and the loan payment from steps 1 and 2, calculate the debt to service ratio.
FAQ
DSCR stand for debt to service ratio. This is a ratio used in business to describe home much net operating income results from a certain debt to achieve that NOI. The higher the operating income the better the DSCR.
Net Operating Income is a term in business used to show how much income is being produced from a certain product or service. It will be the total income minus the costs.
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