Commercial Mortgage Canada: How Debt Service Ratio Works

If your bank has turned you down for a residential mortgage because your debt ratios are too high, don’t give up. There’s another option you might not know about: commercial financing.

Commercial mortgages work completely differently than residential ones. And that difference could be the key to growing your real estate portfolio.

How Commercial Financing Actually Works

Here’s the big difference: residential mortgages focus on you and your personal income. Commercial mortgages focus on the property itself.

When you apply for a residential mortgage, the bank looks at your income, your debts, and calculates your debt ratios. If those numbers don’t work, you’re stuck.

But with commercial financing, lenders care way more about the property’s numbers. Can the building generate enough rental income to cover its costs? That’s what matters most.

This is similar to how investment property financing works in the US. The property needs to stand on its own.

Book Your Strategy Call

Who Should Look at Commercial Mortgages?

Commercial financing makes sense for several types of investors:

• You own multiple properties and your debt ratios are maxed out
• You’re self-employed and don’t show traditional income on paper
• You want to buy larger multi-family buildings (six units or more)
• You’re building new rental properties from the ground up

The key is that you’re buying a property that generates rental income. Single-family rentals usually fall under residential rules. But once you get into duplexes, fourplexes, and apartment buildings, commercial options open up.

The CMHC MLI Select Program

One of the best programs for Canadian investors is the CMHC MLI Select program. This is specifically designed for rental properties.

Here’s what makes it powerful:

• Up to 95% loan-to-cost financing (you only need 5% down)
• Amortization periods up to 50 years (way lower monthly payments)
• You need a debt service coverage ratio of just 1.1

That debt service ratio means the property’s rental income needs to be 1.1 times the mortgage payment and other costs. That’s pretty easy to hit with the right property.

This program works especially well in cities like Edmonton where median rents are high. When you’re building new, you can design the building specifically to fit the program requirements.

Why Edmonton Works So Well

Edmonton has become a hot spot for this type of investing. The median rent sits around $1,665 (as of early 2025), which makes the numbers work really well for the MLI Select program.

Plus, Alberta generally welcomes landlords. The regulations are reasonable and the government wants rental housing built.

Many investors from expensive markets like Victoria and Vancouver are building their portfolios in Edmonton because the numbers actually make sense.

Get Your Property Pre-Qualified

Here’s a mistake many investors make: they find a property, get it under contract, and then apply for financing. Four to six weeks later, they find out it doesn’t work.

Smart investors do this backwards. They get pre-qualified first. And they analyze properties before making offers.

Good mortgage brokers who specialize in commercial deals have tools to analyze a property quickly. Within 24 hours, you can know:

• How much financing you can get
• What the terms will look like
• Whether the property fits CMHC programs
• If there are any gaps you need to fill

This saves you from wasting time on properties that won’t work. And it lets you move fast when you find a good deal.

Why Working with Investors Matters

When you’re choosing who to work with for commercial financing, experience matters a lot.

You want someone who is actually doing what you’re trying to do. If your mortgage broker is building multi-family properties themselves, they understand the process from the inside.

They know which builders to work with. They know how to structure deals to fit CMHC requirements. They’ve been through the process multiple times.

Compare that to walking into a bank and talking to someone who has never invested in real estate. They might be able to process your application, but they can’t really guide you.

Shop Around for Better Terms

Another benefit of working with a mortgage broker: you get access to multiple lenders.

When you go direct to one bank, you get their rates and their terms. Take it or leave it.

A broker can shop your deal around to different lenders. That competition gets you better rates, better terms, and more flexibility.

For commercial deals that can be hundreds of thousands or even millions of dollars, a small difference in your interest rate adds up fast.

Building Generational Wealth

The real goal here isn’t just to buy one property. It’s to build a portfolio that creates lasting wealth for you and your family.

Commercial financing opens doors that residential financing can’t. You can scale faster, buy bigger properties, and structure deals that actually cash flow from day one.

Whether you’re just starting out or you’re a seasoned investor looking to go bigger, understanding your commercial financing options changes the game.

Get your financing lined up before you start looking at properties. Work with people who have real experience. And build your portfolio strategically instead of just buying whatever you can get approved for.

Book Your Strategy Call

Frequently Asked Questions

Written by

LendCity

Published

December 22, 2025

Tags

Commercial Financing Cash Flow Mortgage Qualification Portfolio Growth Mortgage Basics

Key Terms in This Article

Amortization

Amortization

The period over which a mortgage is scheduled to be fully paid off through regular payments of principal and interest. In Canada, common amortization periods are 25 or 30 years, though the mortgage term (when you renegotiate) is typically 1-5 years.

CMHC Insurance

CMHC Insurance

Mortgage default insurance from Canada Mortgage and Housing Corporation. For 1-4 unit investment properties, investors must put 20%+ down (no insurance available). However, CMHC offers MLI Select for 5+ unit multifamily properties, and house hackers can access insured mortgages with 5-10% down.

Cash Flow

Cash Flow

The money left over after collecting rent and paying all expenses including mortgage, taxes, insurance, maintenance, and property management.

DSCR

DSCR

Debt Service Coverage Ratio - a metric that compares a property's net operating income to its mortgage payments. A DSCR of 1.25 means the property generates 25% more income than needed to cover the debt. Lenders typically require a minimum DSCR of 1.0 to 1.25 for investment property loans.

Down Payment

Down Payment

The upfront cash payment when purchasing a property. For 1-4 unit investment properties, minimum 20% down is required. 5+ unit multifamily can use CMHC MLI Select with lower down payments, and house hackers can put as little as 5% down on owner-occupied 2-4 plexes.

Interest Rate

Interest Rate

The cost of borrowing money, expressed as a percentage. It determines how much you pay on top of the principal borrowed.

LTV

LTV

Loan-to-Value ratio - the mortgage amount expressed as a percentage of the property's appraised value or purchase price (whichever is lower). An 80% LTV means you're borrowing 80% and putting 20% down. Lower LTV generally means better rates and terms.

Single Family

Single Family

A detached home designed for one household, the most common property type for beginner real estate investors.

Blanket Mortgage

Blanket Mortgage

A single mortgage that covers multiple properties, often used by investors to simplify financing for a portfolio. Allows release of individual properties as they're sold.

Mortgage Broker

Mortgage Broker

A licensed professional who shops multiple lenders to find the best mortgage rates and terms for borrowers. Unlike banks, brokers have access to dozens of lending options.

Hover over terms to see definitions, or visit our glossary for the full list.

Related Articles

• Net Operating Income: Get Your Clients Approved Fast