RETrackerDebt-service coverage ratio (DSCR) is net operating income divided by annual debt service: DSCR = NOI ÷ annual mortgage payments. It tells a lender whether the rent covers the mortgage, and it is often the single ratio that decides how large a loan you qualify for on an income property.
What is DSCR?
DSCR compares the income a property produces to the debt it has to service. A DSCR of 1.0 means NOI exactly equals the mortgage payments — no cushion. Above 1.0 means the property throws off more than enough to cover the loan; below 1.0 means the rent alone cannot, and you would top it up from other income.The formula
DSCR = NOI ÷ annual debt service. NOI is annual rent minus operating expenses (no mortgage). Annual debt service is your total yearly mortgage payments — principal plus interest.DSCR calculator
Worked example
Take a $600,000 triplex that rents for $54,000 a year ($1,500 per unit per month). Operating expenses — property tax, insurance, maintenance, a vacancy allowance and management — run about 32% of rent, or $17,280, leaving net operating income (NOI) of $36,720. You put 25% down ($150,000) plus roughly $18,000 of closing costs including the welcome tax, so $168,000 of cash goes in. The $450,000 mortgage at 5.0% over 25 years costs about $31,572 a year ($2,631 a month).
DSCR = $36,720 ÷ $31,572 = 1.16. In other words, the building produces $1.16 of net income for every $1.00 of mortgage — a modest but positive cushion.What DSCR do lenders want in Canada?
It varies by lender and program, but common benchmarks are:- 1.10–1.20 — CMHC multi-unit programs such as MLI Select can allow ratios in this range, depending on the loan and the property's affordability or energy commitments.
- 1.20–1.30 — typical minimum for conventional commercial mortgages on rental buildings.
- Below 1.0 — the rent does not cover the debt; most lenders decline, or require more down payment.
How to improve a weak DSCR
- Increase NOI — raise rents to market, add income (parking, storage, laundry), or trim operating costs.
- Lower debt service — put more money down, or extend the amortization to reduce the annual payment.
- Buy at a lower price, which reduces the loan for the same NOI.
- Reduce the interest rate, which cuts the payment and lifts the ratio.
Frequently asked questions
What is a good DSCR for rental property?
Most Canadian lenders want at least 1.20–1.25 on conventional commercial loans; some CMHC multi-unit programs allow around 1.10. Higher is safer and can qualify you for a larger loan.
Does DSCR use NOI or gross rent?
NOI — net operating income, after operating expenses but before the mortgage. Using gross rent would overstate your coverage.
What does a DSCR of 1.25 mean?
The property's net operating income is 1.25 times its annual mortgage payments — a 25% cushion above breakeven.
Is DSCR the same as the mortgage stress test?
No. DSCR is a property-level income-coverage ratio. The stress test is a borrower-level qualifying-rate check on residential mortgages. Commercial and multi-unit lending leans heavily on DSCR.
Keep reading
Cap rate
The unlevered yield: NOI divided by price.
Cash-on-cash return
The cash return on the actual cash you invest.
IRR
Your total time-weighted return, including the sale.
How to analyze a rental deal
The four numbers every Canadian investor runs before buying.
Sources
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