Debt service coverage ratio (DSCR)
Asset-Backed Securities glossary · Collateral & Cash Flow Modeling
Definition
NOI divided by annual debt service; CMBS underwriting metric.
Debt service coverage ratio (DSCR) in plain English
Before lending millions against an office building or apartment complex, a lender checks whether the building earns enough to cover its loan payments. DSCR compares the property's yearly income after operating costs (NOI, or Net Operating Income — rent collected minus expenses like maintenance and taxes) against its yearly loan payments. A DSCR of 1.25 means the building brings in $1.25 for every $1 it owes — a comfortable safety margin — while a DSCR below 1.0 means it doesn't even earn enough to pay its debt, a red flag. It's the same question a bank asks about you: does your paycheck comfortably cover your bills?
Also called: DSCR
Learn these first
Related Asset-Backed Securities terms
Asset-Backed Securities practice questions · Asset-Backed Securities flashcards · Asset-Backed Securities study guide