ICR Calculator: Interest Coverage Ratio Explained
1. Short answer
ICR (interest coverage ratio) is net rental income divided by annual interest. It says how many times the rent can pay the interest.
ICR = NOI ÷ annual interest
A property with € 11,074 of NOI and € 9,975 of interest has an ICR of 1.11. So € 1.11 of net rent arrives for every euro of interest. Below 1.00 the property cannot carry its own interest.
2. ICR or DSCR, which figure when?
This is the only question that really matters with this metric.
| ICR | DSCR | |
|---|---|---|
| Denominator | interest only | interest plus principal |
| Measures | whether the property covers interest | whether it covers the whole loan payment |
| Interest-only loan | equal to DSCR | equal to ICR |
| Annuity loan | always higher | always lower |
On exactly the property from the worked example: ICR 1.11, DSCR on an annuity loan 0.86. Same loan, same rate, same property, and one figure says "covered", the other "not covered".
That is why ICR without DSCR beside it is half an answer. It is useful when you want to isolate interest-rate risk, for example at a rate review. For whether you can meet the monthly payments, DSCR is the right figure.
3. The formula, component by component
Numerator: NOI. Net rental income: annual rent minus operating costs, including vacancy allowance and management. Do not use gross rent.
Denominator: annual interest. The interest portion only, across all loan parts. On an annuity the interest portion falls every year while the total payment stays flat, so ICR improves on its own as the loan ages. Always state which year you are using.
4. Worked example
The same apartment: NOI of € 11,074, a € 199,500 loan at 5.0%.
| Item | Amount |
|---|---|
| NOI | € 11,074 |
| Annual interest (199,500 × 5.0%) | € 9,975 |
ICR = 11,074 ÷ 9,975 = 1.11
| Metric | Value | What it means |
|---|---|---|
| ICR | 1.11 | Rent covers interest 1.11 times |
| DSCR on annuity | 0.86 | With principal, the property is not self-covering |
| Interest headroom | 11% | Interest can rise 11% before cover is lost |
That last row is what makes ICR useful: at 5.0% and an ICR of 1.11, the property hits its limit once the rate reaches roughly 5.55%. That is the question at every rate review.
5. What counts as a good ICR?
| Range | What it usually signals |
|---|---|
| below 1.00 | The property cannot pay its interest from rent |
| 1.00 – 1.25 | Covered but vulnerable to a rate rise |
| 1.25 – 1.50 | Common requirement where lenders test on ICR |
| above 1.50 | Comfortable margin; often at low LTV |
Some lenders also test against a notional higher rate, typically current plus 1 to 2 points. An ICR of 1.11 at 5.0% becomes 0.85 under a 6.5% stress test, and then the answer is no.
6. Three mistakes that distort the number
Gross rent in the numerator. Gives 1.77 here instead of 1.11. That is not optimistic, it is a different figure.
Using a later year's interest. On an annuity, interest falls each year, so ICR improves by itself. Test year 1, or the year of the rate review.
Taking one loan part when there are several. All interest belongs in the denominator; the property has to carry it together.
7. Run your own numbers
Enter your own figures above. To see what happens at a rate review, with several loan parts and different repayment types per phase, the BRIX Calc rental calculator models it.
8. Frequently asked questions
Why do some lenders use ICR and others DSCR?
Testing on ICR focuses on interest-rate risk and accepts that principal may come from other means. Testing on DSCR means the property must fully support itself. On interest-only financing the two coincide; on an annuity, DSCR is considerably stricter.
Does my ICR change if I make extra repayments?
Yes, it improves: a smaller principal means less interest, so a smaller denominator. Your DSCR only improves if you also adjust the term or monthly payment: otherwise the total payment stays the same.
Does vacancy count?
Yes, through the numerator. NOI should include a vacancy allowance. Assuming full occupancy overstates ICR and removes exactly the margin the figure exists to provide.
Is an ICR of 1.11 enough to get financing?
Usually not. Most lenders require 1.25 or higher and also test against a notional higher rate. An ICR of 1.11 means the property has almost no margin, precisely what the lender wants to avoid.
How does it relate to DSCR?
On interest-only they are identical: debt service then consists only of interest. On any amortising form ICR is higher than DSCR, and the gap is exactly the principal divided by NOI.