Debt Yield vs DSCR: Key Differences, Formula & Sizing
Compare debt yield vs DSCR in commercial real estate. Understand how loan constants bridge the two formulas, which binds first, and worked sizing examples.
Debt yield divides annual NOI by total loan balance (NOI Ă· Loan Amount), while DSCR divides annual NOI by annual debt service (NOI Ă· Annual Debt Service). On a matching basis, DSCR = Debt Yield Ă· Loan Constant. Debt yield is immune to interest rate changes; DSCR fluctuates with rates and amortization.
Debt yield vs DSCR: comparison matrix
| Metric | Formula | Interest Rate Sensitivity | Primary Lender Purpose |
|---|---|---|---|
| Debt Yield | NOI Ă· Loan Amount | Zero (Completely Immune) | Sets the absolute unlevered borrowing floor independent of market rate cycles or amortization. |
| DSCR | NOI Ă· Annual Debt Service | High (Directly Sensitive) | Verifies that ongoing operating cash flow covers periodic principal and interest debt service payments. |
| Loan Constant | Annual Debt Service Ă· Loan Amount | High (Determined by Rate & Amort) | Bridges debt yield and DSCR: DSCR = Debt Yield Ă· Loan Constant. |
Interactive debt yield to DSCR sandbox
Convert between debt yield, mortgage constant, and DSCR in real time:
One loan, two answers
Assume hypothetical income of $1 million, a $12 million loan and $750,000 of annual debt service. Debt yield is 8.33% and DSCR is 1.33x. The annual loan constant is 6.25%.
Against assumed requirements of 10% DY and 1.25x DSCR, the loan passes the coverage test but misses the DY target. Those targets are educational assumptions, not industry minimums.
Translate each target into proceeds
| Test | Calculation | Loan limit |
|---|---|---|
| Assumed 10% DY | $1m / 0.10 | $10,000,000 |
| Assumed 1.25x DSCR at 6.25% constant | $1m / 1.25 / 0.0625 | $12,800,000 |
Here debt yield is the lower of these two limits. If the constant rises to 9%, the DSCR limit becomes $8,888,889, which is lower. An LTV limit can still be lower than either result.
Why rates do not determine the answer alone
Higher payments reduce DSCR for unchanged income and balance. Lower payments increase it. But a change in rates does not automatically switch the binding constraint: compare all resulting limits. Income adjustments, quoted minimums and value also matter.
For IO debt, the payment constant equals the note rate only for the relevant interest-only payment basis. Some underwriting rules require an amortizing payment even during IO; the agency guide explains that distinction.
Use the right calculator
Use the DY-to-DSCR converter for the same-basis identity, the DSCR calculator for payment coverage and the full loan-sizing calculator to compare all three modeled limits. The loan constant guide explains how rate and amortization produce the payment factor.
Frequently asked questions
Can either test pass while the other fails? Yes. They use different denominators and separately specified targets.
Which one is more important? Neither substitutes for the other. Apply each required test and compare the supported balances.
What minimum should I enter? Use the applicable quote or named program, with its income and payment definitions. Do not infer requirements from the calculator defaults.
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