What is a commercial mortgage in Canada?

A commercial mortgage is a loan secured by a commercial or income-producing property — such as an office building, retail plaza, industrial warehouse, multi-unit apartment building (typically 5+ units), or mixed-use property. Commercial mortgages differ significantly from residential mortgages: they are underwritten based on the property income (not personal income), require larger down payments (25%–35%), have shorter terms, and use the Debt Service Coverage Ratio (DSCR) as the key qualification metric.

What is a good DSCR for a commercial mortgage?

Most lenders require a DSCR of at least 1.20–1.25, meaning the property Net Operating Income (NOI) must be 20%–25% higher than the annual mortgage payments. A DSCR of 1.30+ is considered strong and may qualify for better rates. A DSCR below 1.0 means the property does not generate enough income to cover mortgage payments — no traditional lender will approve this. CMHC-insured commercial loans may have slightly different thresholds.

What is the minimum down payment for a commercial mortgage?

The minimum down payment for a conventional commercial mortgage is typically 25%–35% of the purchase price, depending on the property type and lender. CMHC-insured commercial mortgages (available for multi-unit residential buildings with 5+ units) may allow down payments as low as 15%. Owner-occupied commercial properties may qualify for slightly lower down payments with some lenders.

Can you get a commercial mortgage from a regular bank?

Yes, all major Canadian banks (RBC, TD, BMO, Scotiabank, CIBC, National Bank) have commercial mortgage divisions. However, the process is different from residential — you deal with a commercial lending team, provide business and property financials, and the underwriting focuses on property income rather than personal income. Credit unions, trust companies, life insurance companies, and private lenders also provide commercial mortgages.

What are commercial mortgage rates in Canada?

Commercial mortgage rates are typically 0.50%–2.00% higher than residential rates. In 2026, conventional commercial rates range from approximately 5.5%–8.0%, depending on the property type, loan-to-value, term, and borrower profile. CMHC-insured commercial rates are lower — often comparable to residential rates plus a small spread. Private commercial rates can be 8%–12%+.

Commercial Mortgages in Canada: Rates, Qualification & Terms (2026)

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