Debt service

Debt service is what the loan costs you: the principal and interest payments due over a period, most often quoted as an annual figure. A mortgage with a $1,800 monthly payment carries $21,600 of annual debt service. It deliberately excludes property taxes and insurance — those are operating costs of the property, while debt service is the cost of your financing choice.

Debt service is the dividing line in rental math. Income minus operating expenses is NOI, which describes the property; NOI minus debt service is cash flow, which describes your deal. Lenders compare the two directly through the debt service coverage ratio, and the break-even ratio asks the same question from the other side. Because refinancing changes debt service without touching the property, it is the lever that can turn the same building from cash-flowing to cash-bleeding.