Direct answer
What does debt service mean?
Debt service is the principal and interest a borrower must pay on a loan during a stated period, usually a year.
Exam cue: In investment analysis, NOI is calculated before debt service.
What does it look like in a question?
Example
A property produces $80,000 of NOI and requires $50,000 in annual mortgage payments.
Common exam trap
What should you not confuse it with?
Debt service is not an operating expense in the standard NOI formula.
Related real estate finance terms
AmortizationAmortization is the repayment of debt through scheduled payments that reduce principal over time.Balloon paymentA balloon payment is a final payment that is substantially larger than the preceding scheduled payments.EquityEquity is the owner's value in property after subtracting liens from the property's value for the calculation being used.ForeclosureForeclosure is the legal process used to enforce a mortgage lien after default and subject the property to sale or another court-ordered remedy.Loan-to-value ratioThe loan-to-value ratio (LTV) is the loan amount expressed as a percentage of the applicable property value or price.MortgageA mortgage is a security instrument that creates a lien on real property to secure repayment of a debt.
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