Finance a $2,000,000 building at 65% of value and the loan is $1,300,000. Over 25 years at 6.40% that’s $8,629.06 a month, or $103,549 a year. Put in your own price, income and rate below to see the payment and how much a lender’s income test may allow.
Why does a lender look at two limits?
A commercial lender sizes the loan twice. First, as a share of the building’s value, and the calculator hints that lenders often lend 55% to 75%. Second, by an income test. The building’s net operating income (rent less operating costs, before the mortgage) has to cover the yearly payment with room to spare.
That room is the debt service coverage ratio, or DSCR. The calculator hints at a range of 1.20 to 1.35 and starts at 1.25. You can expect to borrow whichever limit is lower, and the result tells you which one that was.
What do three different deals look like?
Every case below uses a $2,000,000 property, a 6.40% rate, 25 years of amortization and a 1.25 lender requirement. Only the loan share and the income change.
| Case | Loan | Coverage | Largest loan | Limited by |
|---|---|---|---|---|
| 65% loan, $150,000 income | $1,300,000 | 1.45 | $1,300,000 | Value |
| 75% loan, $150,000 income | $1,500,000 | 1.26 | $1,500,000 | Value |
| 65% loan, $100,000 income | $1,300,000 | 0.97 | $1,004,359 | Income |
Walking through the default building
The loan is $1,300,000 and net operating income is $150,000. Yearly payments are $103,549, so income covers them 1.45 times, comfortably over the 1.25 requirement. The debt yield, which is income divided by the loan, is 11.54%. Income alone would support $1,506,538, so the value cap is the tighter one. You’d need $700,000 down. After a five year term the balance is $1,174,344, and that’s what you’d have to renew or pay off.
Push the loan to 75% and the payment rises to $9,956.60 a month. Coverage slips to 1.26, barely above the line, and the down payment falls to $500,000. Go the other way and cut income to $100,000, and coverage drops to 0.97. The calculator warns that the loan may be cut, and the income test allows only $1,004,359.
What trips people up?
Using rent where net operating income belongs is the classic slip. Take off taxes, insurance, repairs and vacancy first, or the coverage will look better than a lender will see it. Owners also forget that term and amortization aren’t the same thing. Mind the gap between them.
Fees are extra. Appraisals, environmental reports and legal costs aren’t in the result, and since every lender has its own limits, you’ll want a term sheet from a real one before you count on any of these numbers. To judge whether the building earns enough, try the cap rate calculator and the cash on cash return calculator. A smaller income property suits the rental property calculator better. And a home loan is a different product, so use the mortgage calculator for that.
Where the numbers come from
Every input is yours. The payment is a standard formula with the rate compounded twice a year and payments taken monthly. The lending share and coverage hints are the calculator’s own typical ranges, not rules, and we didn’t confirm them against an official source. This site has no connection with any government body, and the results are estimates.
Frequently asked questions
What is the debt service coverage ratio?
Net operating income divided by the yearly mortgage payment. The default example comes to 1.45 against a 1.25 requirement.
How much of the price can I borrow?
The calculator hints that lenders often lend 55% to 75% of value. Your lender sets the real limit.
What if the building's income is too low?
The income test caps the loan. At $100,000 of income, the default building supports only $1,004,359.
What is net operating income?
Rent and other income minus operating costs, before any mortgage payments.
Are closing costs in the result?
No. Appraisal, environmental reports and legal costs come on top.
Sources and updates
Updated: . How we check rates · Editorial team · Updates
Estimate only. These figures are a planning estimate, not tax, legal or accounting advice. Tax-Services.ca is an independent publisher: we don't prepare or file tax returns, and we don't offer tax, legal or accounting services. We have no connection with the Canada Revenue Agency, Revenu Québec or any provincial government. Your real amounts depend on details this tool cannot see, so confirm them with an official source or a qualified professional before you act.