1. What is Mortgage Interest Coverage Ratio?

The Interest Coverage Ratio (ICR) measures a property's ability to cover its mortgage payments with its net operating income. It's a key metric used by lenders to assess the risk of a mortgage loan.

2. How Does the Calculator Work?

The calculator uses the ICR formula:

Where:

• \( NOI \) — Net Operating Income (USD)
• \( Mortgage\ Payment \) — Total mortgage payment including principal and interest (USD)

Explanation: The ratio shows how many times the property's income covers the mortgage payment. Higher ratios indicate lower risk.

3. Importance of ICR Calculation

Details: Lenders typically require a minimum ICR (often 1.2-1.5) to ensure the property generates sufficient income to cover debt obligations. A ratio below 1 indicates the property doesn't generate enough income to cover its mortgage.

4. Using the Calculator

Tips: Enter accurate NOI (all income minus operating expenses but before financing costs) and total mortgage payment. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ICR for mortgages?
A: Most lenders prefer ICR ≥ 1.2-1.5. Commercial mortgages often require higher ratios (1.5-2.0+).

Q2: How is NOI different from gross income?
A: NOI is gross income minus operating expenses (taxes, insurance, maintenance, etc.) but before mortgage payments and income taxes.

Q3: Does ICR include principal payments?
A: Yes, the mortgage payment should include both principal and interest components.

Q4: Can ICR be used for rental properties?
A: Yes, it's commonly used for both commercial and residential rental property financing.

Q5: How often should I calculate ICR?
A: Regularly monitor ICR, especially when considering refinancing or if property income/expenses change significantly.