Debt service coverage ratio compares a property’s operating income with its mortgage payments. A useful calculation starts with defensible income and expenses, then tests how much room remains when the numbers change.
What the ratio measures
For an income-producing property, DSCR = annual net operating income ÷ annual debt service. Debt service includes the principal and interest payments being assessed. Use matching periods: annual income with annual payments, or monthly figures on both sides. CMHC’s explanation of property debt coverage supports this relationship.
A result of 1.00 means the modelled operating income just covers those payments. Above 1.00 leaves some room; below 1.00 shows a shortfall. That is arithmetic, not a credit decision.
Build an income figure you can explain
Start with the rent roll rather than the most optimistic advertisement. In this original example, scheduled annual rent is $240,000. We allow $12,000 for vacancy and unpaid rent, then deduct $48,000 of annual operating expenses:
| Item | Annual amount |
|---|---|
| Scheduled rent | $240,000 |
| Vacancy and collection allowance | −$12,000 |
| Operating expenses | −$48,000 |
| Net operating income | $180,000 |
Keep the mortgage payments out of operating expenses in this example: they belong in the denominator. Maintain separate lines for property taxes, insurance, utilities, maintenance and management so another reviewer can follow the assumptions.
Work through the coverage
If annual principal and interest payments are $144,000, coverage is $180,000 ÷ $144,000 = 1.25. The difference is $36,000 a year, or $3,000 a month, before items outside this operating model. Do not label that whole amount spendable profit: major replacements, income tax and other obligations may still require cash.
Now reduce NOI to $160,000 without changing the loan. Coverage falls to 1.11. If annual debt payments also rise to $160,000, coverage becomes 1.00. These two changes reveal more than a single favourable starting ratio.
Ask which target and definition apply
There is no single DSCR requirement for every Canadian property or lender. CMHC’s Standard Rental Housing program has its own underwriting framework. Confirm the applicable product, income adjustments and debt-service assumptions.
If a lender specifies a 1.25 target for this particular illustration, $180,000 of NOI supports $144,000 of annual debt service. Converting that payment capacity into a mortgage requires the actual rate, amortization and payment convention. A loan-to-value limit may reduce the amount further.
Business lending may use EBITDA rather than property NOI. BDC’s business DSCR guide explains that distinction; do not mix the two income measures without confirming the lender’s method.
Make the estimate useful
In the commercial calculator, compare the current rent roll with a lower-income case and a higher-expense case. Label each assumption, keep supporting records, and ask the lender to confirm the inputs before treating the result as financing capacity.
Put the figures into a scenario
Use the appropriate assumptions, compare the results and save a summary for your file.
Open the Commercial DSCR Calculator →Sources and review
References checked September 22, 2026. Examples are illustrative; confirm the lender, insurer and program requirements for your situation.