Debt Service: The Loan Payment Your Rental Has to Carry

Debt service is what you pay on a loan each period, usually monthly. On an amortizing loan it includes principal and interest. On an interest-only loan it is interest alone. Add up twelve months and you have annual debt service.

A simple example

Example, round numbers. You borrow $300,000 at 8%.

• Interest only: $300,000 × 8% ÷ 12 = $2,000 a month, or $24,000 a year. The balance stays at $300,000.
• 30-year amortization: about $2,200 a month, or roughly $26,400 a year. A small slice of each payment pays down principal.

Where it shows up

Debt service sits on the bottom of the debt service coverage ratio (DSCR). On many 1 to 4 unit rental loans, lenders compare rent to the full monthly housing payment, which often includes taxes, insurance and any HOA dues. If rent is $3,000 and that payment is $2,500, DSCR is 1.2. Above 1.0 means the rent covers the payment. Below 1.0, you make up the shortfall yourself each month.

What moves it

Rate, loan amount, amortization length, and any interest-only period. A longer amortization lowers the payment. An interest-only period lowers it more, but only for a while.

Why it matters to you

Debt service decides what is left after the loan gets paid. Run your cash flow on the payment you will make for most of the hold, not just the lowest one.

At RSC Private Lending, Fix & Flip, New Construction and Bridge loans are interest-only. DSCR Rental loans are 30-year fixed, with a minimum DSCR of 0.75x. Send us your scenario for a term sheet in 24 hours. Subject to underwriting.