1. What Is Annual Debt Service?

Annual Debt Service (ADS) is the total principal and interest payment owed on a financial obligation, such as a commercial mortgage loan, expressed on an annual basis. It represents the yearly cash outflow required to service a debt.

2. How Does The Calculator Work?

The calculator uses the Annual Debt Service formula:

Where:

• Principal — The original amount of money borrowed in a loan, excluding interest and other charges
• Interest Amount — The cost of borrowing money, typically expressed as a percentage of the principal amount borrowed

Explanation: The equation simply sums the principal repayment and interest payment components to determine the total annual debt service obligation.

3. Importance Of ADS Calculation

Details: Calculating Annual Debt Service is crucial for financial planning, loan affordability assessment, debt service coverage ratio calculation, and overall financial health evaluation for both individuals and businesses.

4. Using The Calculator

Tips: Enter the principal amount and interest amount in dollars. Both values must be non-negative numbers. The calculator will compute the total annual debt service obligation.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between principal and interest?
A: Principal is the original loan amount borrowed, while interest is the cost charged by the lender for borrowing that money.

Q2: Does ADS include other loan fees?
A: Typically, ADS refers only to principal and interest payments. Other fees like origination fees, insurance, or taxes are usually calculated separately.

Q3: How is ADS used in commercial lending?
A: Lenders use ADS to calculate debt service coverage ratios (DSCR) which measure a borrower's ability to repay the loan.

Q4: Can ADS change over time?
A: Yes, with variable interest rate loans or amortizing loans where the principal/interest mix changes over the loan term.

Q5: Is ADS calculated differently for different loan types?
A: The basic formula remains the same, but the calculation of principal and interest components may vary based on loan structure (fixed vs variable rate, amortization schedule, etc.).