Commercial mortgages in Canada are a different world from residential lending — underwritten on property income, structured around DSCR, and requiring significantly more capital.
Commercial vs residential mortgages
| Feature | Residential Mortgage | Commercial Mortgage |
|---|---|---|
| Property type | 1–4 unit residential | 5+ unit residential, office, retail, industrial, mixed-use |
| Primary qualification | Personal income (GDS/TDS) | Property income (DSCR) |
| Down payment | 5%–20% | 25%–35% (15% with CMHC insurance) |
| Interest rates | Lower | 0.50%–2.00% higher |
| Amortization | Up to 25–30 years | 15–25 years (sometimes 30 with CMHC) |
| Term | 1–10 years | 1–10 years |
| Underwriting complexity | Moderate | High — requires property financials, appraisal, environmental assessment |
| Personal guarantee | Yes (always) | Usually required — sometimes limited or non-recourse for strong deals |
| Prepayment | Flexible (especially for variable) | Often restricted — yield maintenance or penalties |
Types of commercial properties
| Property Type | Description | Typical DSCR | Typical LTV |
|---|---|---|---|
| Multi-unit residential (5+ units) | Apartment buildings | 1.20+ | 65%–75% (up to 85% with CMHC) |
| Retail / strip mall | Shopping centres, standalone retail | 1.25+ | 60%–75% |
| Office | Office buildings, professional centres | 1.25+ | 60%–70% |
| Industrial / warehouse | Distribution, manufacturing, storage | 1.20+ | 60%–75% |
| Mixed-use | Retail on ground floor, residential above | 1.20–1.25+ | 65%–75% |
| Hotels / hospitality | Hotels, motels, resorts | 1.30+ | 55%–65% |
| Special purpose | Gas stations, car washes, self-storage | 1.30+ | 55%–65% |
Key metrics
Debt Service Coverage Ratio (DSCR)
| Component | Calculation |
|---|---|
| Net Operating Income (NOI) | Gross rental income − operating expenses (excluding mortgage payments) |
| Annual debt service | Total annual mortgage payments (principal + interest) |
| DSCR | NOI ÷ annual debt service |
| Minimum required | 1.20–1.25 (most lenders) |
| Strong | 1.30+ |
DSCR example
| Item | Amount |
|---|---|
| Gross rental income | $300,000/year |
| Vacancy allowance (5%) | −$15,000 |
| Operating expenses | −$120,000 |
| NOI | $165,000 |
| Annual mortgage payments | $125,000 |
| DSCR | $165,000 ÷ $125,000 = 1.32 ✅ |
Cap rate
| Component | Calculation |
|---|---|
| Cap rate | NOI ÷ purchase price |
| Example | $165,000 ÷ $2,500,000 = 6.6% |
| Use | Measures the property’s rate of return independent of financing |
Commercial mortgage rates (2026)
| Lender Type | Rate Range | Best For |
|---|---|---|
| CMHC-insured (multi-residential) | 4.5%–5.5% | 5+ unit apartment buildings |
| Major banks (conventional) | 5.5%–7.0% | Strong properties with experienced borrowers |
| Credit unions | 5.5%–7.0% | Local/regional commercial properties |
| Life insurance companies | 5.0%–6.5% | Large, stable properties ($5M+) |
| Private / alternative lenders | 8.0%–12.0% | Bridge financing, value-add, higher risk |
| CMBS (securitized) | 5.5%–7.0% | Large institutional properties |
Qualification requirements
| Requirement | Details |
|---|---|
| DSCR | 1.20+ (most lenders require 1.25+) |
| LTV | 65%–75% conventional; up to 85% CMHC-insured |
| Property financials | 2–3 years of income and expense statements |
| Rent roll | Current tenant list with lease terms and rental rates |
| Appraisal | Commercial appraisal ($3,000–$10,000+) — income approach and direct comparison |
| Environmental assessment | Phase I ESA required (some properties need Phase II) — $2,000–$5,000+ |
| Building condition report | May be required — $3,000–$10,000 |
| Personal financial statement | Net worth statement for all guarantors |
| Credit score | 680+ preferred; some lenders accept 650+ |
| Experience | Many lenders prefer borrowers with property management/ownership experience |
| Business plan | For value-add or repositioning — outline the improvement plan and projected returns |
CMHC-insured commercial mortgages
CMHC insures mortgages on multi-unit residential buildings (5+ units):
| Feature | CMHC-Insured | Conventional |
|---|---|---|
| Property type | Multi-residential (5+ units) only | Any commercial |
| Max LTV | 85% | 65%–75% |
| Insurance premium | 1.5%–4.5% of loan (added to mortgage) | N/A |
| Interest rate | Lower — lender risk is reduced | Higher |
| Amortization | Up to 40 years (some programs) | 15–25 years |
| DSCR requirement | 1.10+ (varies by program) | 1.20–1.25+ |
| Application | More paperwork; longer processing | Varies |
| Best for | Apartment building purchases with limited capital | N/A |
Closing costs
| Cost | Typical Range |
|---|---|
| Appraisal | $3,000–$10,000+ |
| Phase I Environmental | $2,000–$5,000 |
| Building condition report | $3,000–$10,000 |
| Legal fees | $5,000–$15,000 |
| Land transfer tax | Varies by province (same rates as residential) |
| CMHC insurance premium | 1.5%–4.5% of loan amount (if applicable) |
| Survey / RPR | $1,500–$3,000 |
| Title insurance | $1,000–$3,000 |
| Broker fees | 0.50%–1.50% of loan (varies) |
| Total (on a $2M purchase) | $40,000–$100,000+ |
The application process
| Step | Details | Timeline |
|---|---|---|
| 1. Prepare financials | Rent roll, income statements, expense records, personal net worth | Pre-application |
| 2. Engage a commercial mortgage broker | They access multiple lenders and negotiate terms | Week 1 |
| 3. Submit application package | Full financials, property details, purchase agreement | Week 1–2 |
| 4. Lender review | Initial underwriting, preliminary approval | 2–4 weeks |
| 5. Appraisal ordered | Lender commissions a commercial appraisal | 2–4 weeks |
| 6. Environmental assessment | Phase I ESA ordered (Phase II if needed) | 2–4 weeks |
| 7. Commitment letter | Lender issues a formal mortgage commitment | 4–8 weeks |
| 8. Legal review and closing | Lawyers prepare documents; funds disbursed | 2–4 weeks |
| Total timeline | 8–16 weeks |
Common terms in commercial mortgages
| Term | Meaning |
|---|---|
| NOI | Net Operating Income — gross income minus 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 | Lender can pursue personal assets if the borrower defaults |
| Non-recourse | Lender can only seize the property — not personal assets (rare in Canada) |
| Yield maintenance | Prepayment penalty — compensates lender for lost interest |
| Blanket mortgage | One mortgage covering multiple properties |
| Vendor take-back (VTB) | Seller provides part of the financing |