Commercial mortgages in Canada finance apartment buildings of 5 or more units and office, retail, industrial and mixed-use property. They are underwritten mainly on the property’s income rather than the borrower’s, measured with the debt service coverage ratio (DSCR). This page is part of WealthNorth’s guide to investment property financing; for buying the property itself, see commercial real estate investing.
Commercial vs residential mortgages
| Feature | Residential mortgage | Commercial mortgage |
|---|---|---|
| Property | A home of up to 4 units | An apartment building of 5 or more units, or office, retail, industrial or mixed-use property |
| How you qualify | Your own income, measured with the GDS and TDS ratios | Mainly the property’s income, measured with its DSCR, plus the borrower’s net worth and experience |
| Smallest down payment with insurance | 5% on the first $500,000 of a home you live in | 15% on an apartment building with CMHC’s standard multi-unit insurance |
| Longest insured amortization | 25 years (30 for first-time buyers and new builds) | 40 years on an existing building, 50 on new construction |
| Without insurance | At least 20% down | Loan-to-value, amortization and term set by each lender |
A small rental of up to 4 units is still financed with a residential mortgage; the rules for those are in rental property mortgages.
Types of commercial property
| Property type | Examples | CMHC multi-unit insurance |
|---|---|---|
| Multi-unit residential | Apartment buildings of 5+ units | Yes |
| Mixed-use | Shops on the ground floor, apartments above | Only if the non-residential space is at most 30% of the floor area and of the lending value |
| Retail | Plazas, standalone stores | No |
| Office | Office buildings, professional centres | No |
| Industrial | Warehouses, distribution, manufacturing | No |
| Hotels and special purpose | Hotels, self-storage, gas stations | No |
Debt service coverage ratio (DSCR)
| Component | Calculation |
|---|---|
| Net operating income (NOI) | Gross rental income minus vacancy and operating expenses (not mortgage payments) |
| Annual debt service | Total annual mortgage payments (principal and interest) |
| DSCR | NOI ÷ annual debt service |
A DSCR below 1 means the building’s income doesn’t cover its mortgage payments. Each lender sets the minimum it will accept, and the minimum caps the size of the loan the building can carry. CMHC calls the ratio the debt coverage ratio (DCR) and sets these minimums for its standard rental insurance:
| Building | Minimum DCR (CMHC standard rental) |
|---|---|
| 5 or 6 units, purchase | 1.10 |
| 5 or 6 units, refinance | 1.20 |
| 7+ units, term of 10 years or more | 1.20 |
| 7+ units, term under 10 years | 1.30 |
DSCR example
A building with $300,000 of gross rent a year, a 5% vacancy allowance, $120,000 of operating expenses and $125,000 of annual mortgage payments:
| Item | Amount |
|---|---|
| Gross rental income | $300,000 |
| Vacancy allowance | −$15,000 |
| Operating expenses | −$120,000 |
| Net operating income (NOI) | $165,000 |
| Annual mortgage payments | $125,000 |
| DSCR | 1.32 |
A DSCR of 1.32 is above CMHC’s 1.30 minimum for a building of 7 or more units on a term under 10 years. A conventional lender would compare it with its own minimum.
Cap rate
The capitalization rate is NOI ÷ purchase price: it measures the property’s return independent of how it is financed. At a $2,500,000 price, the building above has a cap rate of 6.6% . How to read cap rates is covered in how cap rates work.
Commercial mortgage rates
This page doesn’t list commercial rates. CMHC says its multi-unit insurance helps approved lenders offer insured financing at interest rates comparable to those generally reserved for borrowers with larger down payments. When comparing offers, look at the terms (loan-to-value, amortization, prepayment) as well as the rate. Residential rates are tracked in the mortgage rates hub.
CMHC-insured multi-unit mortgages
CMHC insures mortgages on rental buildings of 5 or more units through its standard rental housing product and MLI Select. For standard rental housing, the project must:
- have at least 5 rental units;
- be at least 70% residential, by both floor area and loan value;
- borrow no more than 85% of the value;
- not be barred by the Prohibition on the Purchase of Residential Property by Non-Canadians Act.
And the borrower must have:
- competence in managing property of a similar size and type, with at least 5 years of multi-unit management experience, or a contract with a professional property management firm;
- a net worth of at least 25% of the loan, and at least $100,000;
- the ability to guarantee the loan: on new construction, all of it until the rents have been stable for 12 consecutive months, after which the guarantee may be reduced to 40% of the balance; on the purchase or refinance of an existing building, 40% of the balance.
Where the loan is no more than 65% of the lending value, the lender can ask for the loan to be non-recourse to the borrower. Amortizations beyond 25 years add a premium surcharge of 0.25% for each extra 5 years. MLI Select allows up to 95% of the value on an existing building, and longer amortizations, in exchange for affordability, energy-efficiency or accessibility commitments; see multi-family investing.
CMHC premiums for standard rental housing
The premium is a share of the loan, may be added to the mortgage and is non-refundable. For a purchase or refinance (not construction financing):
| Loan-to-value | Premium |
|---|---|
| Up to 65% | 2.60% |
| Up to 70% | 2.85% |
| Up to 75% | 3.35% |
| Up to 80% | 4.35% |
| Up to 85% | 5.35% |
CMHC also charges an application fee per unit. MLI Select premiums are discounted by points; confirm the current schedule with the lender or CMHC.
What lenders ask for
Lenders decide how much to lend from the property as well as from you, and may make the loan conditional on an appraisal, environmental and building condition assessments and a title search. For a CMHC-insured multi-unit loan, CMHC’s documentation guide asks for, among other things:
| Item | Details |
|---|---|
| Operating statements | For an existing building, 3 years of detailed operating statements with actual income and expenses |
| Bills | Property tax, insurance and utility invoices for the most recent year |
| Rent roll | A current rent roll (or a pro forma one for new construction), with unit types, vacant units and what the rent includes |
| Appraisal | A current appraisal report, with a letter from the appraiser confirming the lender and CMHC can rely on it |
| Environmental site assessment | Where soil or groundwater contamination is confirmed |
| Experience | The borrower’s past property management experience, and the manager’s résumé if someone else will manage it |
| Individual borrowers and guarantors | Up-to-date personal net worth statements, last year’s tax return with the T776 statement of real estate rentals, and current credit reports |
| Corporate borrowers | Financial statements for the last 3 years and an organization chart |
Closing costs
Besides the down payment, budget for the appraisal, environmental and building condition reports, legal fees, land transfer tax where the province charges it, and, on an insured loan, CMHC’s application fee and premium. Ask each provider for a quote before making an offer, since these costs vary with the size and type of the property.
The application process
| Step | Details |
|---|---|
| 1. Prepare financials | Rent roll, income statements, expense records, personal net worth |
| 2. Talk to lenders or a commercial mortgage broker | Compare loan-to-value, amortization and prepayment terms as well as rates |
| 3. Make an offer with a financing condition | Give the lender enough time to review the deal and complete its due diligence |
| 4. Submit the application package | Full financials, property details, purchase agreement |
| 5. Appraisal and reports | The lender orders or approves the appraisal, environmental and building condition reports |
| 6. Commitment letter | The lender issues a formal mortgage commitment |
| 7. Legal review and closing | Lawyers prepare the documents and the funds are advanced |
Common terms in commercial mortgages
| Term | Meaning |
|---|---|
| NOI | Net operating income: gross income minus vacancy and operating expenses |
| DSCR | Debt service coverage ratio: NOI ÷ annual debt service |
| Cap rate | Capitalization rate: NOI ÷ property value |
| LTV | Loan-to-value: mortgage amount ÷ appraised value |
| Recourse | The lender can pursue the borrower’s other assets if the borrower defaults |
| Non-recourse | The lender can recover only from the property and other security, not personally from the borrower |
| Blanket mortgage | One mortgage covering several properties (see financing a rental portfolio) |
| Vendor take-back (VTB) | The seller provides part of the financing (see vendor take-back mortgages) |
Sources
The figures and rules on this page come from these sources, last checked against them between September 25, 2026 and October 5, 2026. How we check facts.
- CMHC: MLI Select
- CMHC: CMHC Purchase
- CMHC: Calculating GDS / TDS
- CMHC: Home Start
- CMHC: CMHC Improvement
- CMHC: Standard rental housing
- CMHC: Fees and premiums
- CMHC: Required documentation
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