What DSCR means for Canadian investors

DSCR in one worked example

DSCR is one division. Take the property's net operating income for the year and divide it by the annual mortgage payment. That is the ratio your lender reads.

Say a triplex has a net operating income of $36,000 a year. The mortgage payment is $2,500 a month, which is $30,000 a year. Divide $36,000 by $30,000 and the DSCR is 1.20. That means the income covers the debt payment 1.2 times over. There is a 20% cushion before the rent fails to cover the mortgage.

Now drop the rent or raise the costs so the NOI falls to $30,000. The DSCR slides to 1.00. The income exactly covers the payment and no more. Most conventional lenders will not write that loan at the size you want, because there is no cushion. This is why a small change in rent or property tax can decide whether a deal gets the financing you planned on.

The thresholds that matter in Canada

Two numbers do most of the work. A conventional lender usually wants a DSCR near 1.20. A CMHC MLI Select path usually wants about 1.10. That gap looks small, but it is large in practice. A deal that comes in at 1.12 fails the conventional test and clears the MLI Select test. Knowing both paths is the difference between a dead deal and a live one.

How to lift a weak DSCR

You have two levers: the income and the payment. On the income side, real rent increases and lower operating costs raise the NOI. On the payment side, a larger down payment or a longer amortisation lowers the annual debt. The 40-year amortisation tied to MLI Select is a common way to push a borderline DSCR over the line, because a longer term means a smaller yearly payment.

Why DSCR is your lender's language

When you walk into the broker's office, DSCR is the first thing they check. If your numbers already show a clean 1.20 or 1.10 with a real mortgage payment and a real NOI, you look prepared. If the property-tax line is wrong or the rent is optimistic, the DSCR is wrong, and that surfaces at the worst time. A lender-ready file starts with a DSCR the lender can trust.

• Use the city's real mill rate for property tax. It moves the NOI, which moves the DSCR.
• Use a real mortgage payment with the Canadian compounding rule, not a US estimate.
• Run the conventional and MLI Select thresholds together so you know which path the deal fits.

DSCR questions

What is DSCR?

DSCR is the debt service coverage ratio. You divide the property's net operating income by its annual mortgage payment. A DSCR of 1.20 means the income is 1.2 times the debt payment. Lenders use it to size the loan.

What DSCR do Canadian lenders want?

A conventional lender usually wants a DSCR near 1.20. Under a CMHC MLI Select path, the bar drops to about 1.10. The lower threshold is one reason MLI Select can carry deals that conventional financing would reject.

How do I improve a weak DSCR?

Raise the income or lower the payment. More rent or lower operating costs lift the NOI. A larger down payment or a longer amortisation lowers the payment. A 40-year amortisation through MLI Select is a common way to push a DSCR over the line.

Is DSCR the same as cash flow?

No. DSCR is a ratio the lender cares about. Cash flow is the dollars left in your pocket. A deal can clear a 1.20 DSCR and still leave thin cash flow after every other cost. Look at both.