Debt Yield

Debt yield is the ratio of net operating income to total loan amount, measuring property income coverage independent of interest rates or amortization. Banks use it to assess loan risk.

CalculationFormula
Debt yield(Annual NOI / Loan amount) times 100
Inverse calculationMaximum loan = NOI / Minimum debt yield
Risk assessmentHigher debt yield equals lower lender risk
Rate independentUnaffected by interest rate changes
Bank RequirementsMinimum Debt Yield
Residential investment property8% to 10%
Commercial office9% to 11%
Retail property10% to 12%
Development or construction12% to 15%

Related Terms

Net Operating Income (NOI)DSCR LoanLoan-to-Value (LTV)Mortgage Underwriting

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