Finance
A Massachusetts commercial mortgage lender uses a 'debt yield' test, which compares:
AThe loan balance to the property value (LTV)
BNOI to the loan amount, expressed as a percentage✓ Correct
CGross rent to the purchase price
DMonthly debt service to monthly income
Explanation
Debt yield = NOI ÷ Loan Amount. It measures how much income is produced relative to the loan, providing a risk assessment that is independent of capitalization rates.
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Key Terms to Know
Loan-to-Value Ratio (LTV)
The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
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