What is Debt Yield?

Debt yield is a risk assessment tool commonly used by commercial mortgage lenders. It factors in the net operating income generated by a commercial property to estimate the pace at which the lender could recover their investment if a default occurs. This method is favored by some lenders over other risk assessment methods that could be influenced by low interest rates or extended loan repayment schedules. You can calculate debt yield using the following formula: Net Operating Income ÷ Loan Amount = Debt Yield