Commercial Mortgages in Canada: Rates, Terms & How They Differ from Residential

What is a commercial mortgage?

A commercial mortgage is a loan secured against income-producing or business-use real estate: retail plazas, office buildings, industrial warehouses, mixed-use properties, and apartment buildings with five or more units. In Canada, any residential property with more than four units is treated as commercial by lenders, which is why a six-plex in Burnaby is financed very differently from a duplex next door.

Because the property itself is a business, the lender's first question is not "how much do you earn?" — it's "how much does the building earn?" The property's net operating income (rent minus operating expenses, before mortgage payments) determines how much you can borrow, what rate you'll pay, and which lenders will consider the deal. You can run those numbers with the calculator above.

How commercial mortgage rates are set

Residential mortgage rates are anchored to insured, standardized products. Commercial rates are priced deal-by-deal as a spread over the Government of Canada bond yield matching your term — a five-year fixed commercial rate is typically the five-year bond yield plus 1.5% to 3%, depending on the asset, the location, the tenancy, and the borrower's experience.

Strong, stabilized assets with quality tenants in major markets like Vancouver, Calgary, or Toronto price at the tight end of that range. Special-purpose properties (hotels, gas stations, restaurants), rural locations, and short-term or vacant tenancies price wider. As a rule of thumb, expect commercial rates to sit roughly 1–2% above the best residential rates available at the same time.

CMHC-insured multi-family financing is the exception: apartment buildings that qualify for CMHC mortgage loan insurance can price at or even below conventional residential rates, because the insurance removes the lender's default risk. Programs like MLI Select reward energy efficiency, accessibility, and affordability with lower premiums and amortizations up to 40 years.

Terms, amortization, and structure

Commercial mortgages split the loan into a term and an amortization, just like residential — but the gap between them is usually bigger. A common structure is a 5-year term on a 25-year amortization: you make payments as if the loan will be paid off over 25 years, then refinance the remaining balance when the term matures.

CMHC-insured multi-family loans can stretch amortization to 30, 35, or 40 years, which materially improves cash flow and DSCR. On the other hand, commercial loans often come with more restrictive prepayment privileges than residential mortgages, and breaking a fixed commercial term early usually means paying an interest rate differential penalty or a yield-maintenance calculation.

• Terms: typically 1–10 years, with 5 years the most common.
• Amortization: up to 25 years conventional, up to 40 years CMHC-insured.
• Loan-to-value: up to 75% conventional, up to 85% CMHC-insured multi-family.
• Payments: monthly is standard; fixed, variable, and interest-only structures exist.
• Security: often includes a general security agreement and assignment of rents in addition to the mortgage.

How commercial differs from residential

Qualification flips from the borrower to the building. Residential lenders underwrite you — income, credit, debts — using GDS and TDS ratios. Commercial lenders underwrite the property's income using the debt service coverage ratio, then look at your net worth and experience as the guarantor. A strong building can carry a deal even when the borrower's personal income is modest; a weak building can't be saved by a high personal salary.

Down payments are bigger. Where an insured home can be bought with 5% down, conventional commercial financing stops around 75% loan-to-value, and many lenders prefer 65–70% on anything but the strongest assets. That means 25–35% equity, plus closing costs that run higher: commercial appraisals cost $2,000–$10,000+, a Phase I environmental assessment $2,500–$5,000, and legal fees are larger because the security package is more complex.

Timelines are longer. A residential approval can happen in days; a commercial file moves through credit committee, appraisal, environmental review, and legal work over 60–120 days. Rate holds are also different — many commercial lenders don't lock a rate until the deal is approved, so the spread and the bond yield both matter at funding.

Finally, the personal covenant is negotiated. Residential mortgages are full-recourse by default. Commercial loans range from full personal guarantees to limited guarantees and, for larger stabilized assets, non-recourse structures where the lender's only claim is the property itself.

How lenders decide: DSCR and the 1.25x rule

The debt service coverage ratio is the single most important number in a commercial application. Take the property's net operating income — gross rent minus vacancy allowance and operating expenses like property taxes, insurance, maintenance, and management — and divide it by the annual mortgage payments. If a building produces $125,000 of NOI and the mortgage costs $100,000 a year, the DSCR is 1.25x.

Most conventional lenders want 1.20x–1.30x; CMHC-insured multi-family can go as low as 1.10x because of the insurance. If your DSCR falls short, the levers are more equity (smaller loan), a lower rate, a longer amortization, or buying at a lower price. The calculator above shows both your DSCR and the maximum loan the property's income supports at 1.25x.

Refinancing a commercial property

Most commercial mortgages are refinanced, not paid off — the term ends long before the amortization, so you renew into a new term or move to a new lender. Refinancing is also how investors pull equity out of an appreciating building to fund the next purchase: if rents and values have risen, a new appraisal can support a larger loan at the same 75% LTV.

Because commercial files take months, starting the refinance conversation 6–12 months before maturity is standard practice. A broker with access to banks, credit unions, trust companies, life insurers, and CMHC-approved lenders can move the deal to whoever is pricing your asset type most aggressively at that moment. See my commercial mortgage refinance service for how that process works, or reach out to discuss your building.

Worked example: a $2,000,000 mixed-use building in Ontario

At 1.27x coverage this deal fits conventional lending guidelines. If the NOI were $120,000 instead, the DSCR would drop to 1.09x and the deal would need roughly $85,000 more equity — or a lower rate or longer amortization — to qualify. That's why the income statement matters more than the borrower's pay stub.