Commercial Real Estate Finance Glossary
Plain-English definitions for the lender metrics used across the calculators and underwriting guides.
Glossary Terms
- NOI
- Net operating income. Annual property income after vacancy, credit loss, operating expenses, and reserves, before debt service and taxes.
- DSCR
- Debt service coverage ratio. NOI divided by annual debt service, used to test whether property income covers the mortgage payment.
- LTV
- Loan-to-value. Loan amount divided by property value, used to measure collateral leverage.
- CLTV
- Combined loan-to-value. Total debt from all loan layers divided by property value.
- Debt Yield
- NOI divided by loan amount. A lender income-cushion metric that ignores interest rate, amortization, and appraised value.
- Cap Rate
- Capitalization rate. NOI divided by property value or purchase price, used to compare unlevered asset yield.
- Loan Constant
- Annual debt service divided by loan amount. It converts loan proceeds into annual payment burden.
- Amortization
- The schedule over which principal is repaid. Longer amortization usually lowers annual debt service and improves DSCR.
- Balloon Payment
- The remaining loan balance due at maturity when the loan term is shorter than the amortization schedule.
- Replacement Reserves
- Funds set aside for future capital replacements. Lenders may deduct reserves when calculating underwritten NOI.
- Binding Constraint
- The loan sizing test that produces the lowest maximum loan amount. It controls final proceeds.
- Annual Debt Service
- Total required mortgage payments over one year. It is the denominator in DSCR.