Debt Yield vs LTV: Income Cushion vs Collateral Leverage

Debt yield and LTV both help lenders decide how much debt a commercial property can support, but they start from different risk questions.

Debt yield asks: how much income protects the lender relative to the loan balance?

LTV asks: how much debt is advanced relative to the property's value?

Debt Yield = NOI / Loan Amount
LTV = Loan Amount / Property Value

Side by side

The key contrast is the denominator: debt yield divides by the loan, LTV divides by value. That is why a high appraisal helps LTV but does nothing for debt yield — a point that surprises borrowers who sized a deal on value alone, as explained in what is debt yield.

Why LTV can look fine while debt yield is weak

A property can appraise well and still fail income-based loan sizing. This happens when cap rates are low, values are high, or NOI is not strong enough to support the requested loan.

For example, a $15,000,000 loan on a $20,000,000 property is 75% LTV — acceptable for many lenders. But if NOI is only $1,000,000, debt yield is just 6.67%, which may be too thin for a lender requiring 9% or 10%. The collateral test passes; the income test fails.

Why debt yield can pass while LTV binds

The reverse can also happen. A property with strong NOI may support a large loan by debt yield, but the value may not support that much collateral leverage.

If NOI is $1,500,000 and the lender wants a 10% debt yield, income supports $15,000,000. But if the property is worth $16,000,000 and max LTV is 70%, LTV caps proceeds at $11,200,000. Here income is generous and value is the limiting factor.

Which one controls?

The lower supported loan amount controls. Lenders do not choose the metric that gives the borrower the most proceeds; they size to the constraint that protects the credit. In the two examples above, the binding constraint flips from debt yield to LTV depending on whether income or value is the weaker link — and a full sizing also layers in DSCR, which can bind before either when rates are high.

Use the LTV calculator to isolate collateral leverage, the debt yield calculator to test the income cushion, and the CRE loan sizing calculator to compare LTV against debt yield and DSCR at once. For how leverage layers stack, see DSCR vs LTV.

Debt yield is an income test. LTV is a collateral test. Strong commercial mortgage sizing needs both, and the one that binds is whichever leaves the lender with less protection.