How to Refinance Commercial Property in Canada

Refinancing a commercial property in Canada is one of the most powerful moves an investor can make. It is also one of the most misunderstood. Unlike residential refinancing — where you shop for the lowest rate and sign the papers — commercial refinancing involves more variables, more lender types, and significantly more upside if you do it right.

Whether you want to pull equity out of a building, lock in a better rate, restructure your debt, or switch from conventional financing to a CMHC-insured program, this guide covers the entire process. When to refinance, how to prepare, what it costs, and how long it takes.

Five Reasons to Refinance a Commercial Property

Not every reason to refinance is created equal. Here are the five scenarios where it actually makes financial sense.

1. Rate Reduction

Your original mortgage was taken at a higher rate. Rates have dropped. A new mortgage at a lower rate saves you real money every month.

On a $3 million commercial mortgage, dropping from 6.5% to 5.5% saves approximately $30,000 per year. Over a five-year term, that is $150,000. Even after refinancing costs and any penalties, the net savings can be significant.

The key question is always: does the rate savings exceed the total cost of refinancing? If yes, proceed. If no, wait until your term matures.

2. Cash-Out for New Acquisitions

Your property has appreciated — either through market gains, forced appreciation from renovations, or increased NOI from better management. A cash-out refinance lets you access that equity without selling the building.

This is the workhorse strategy for scaling a Canadian commercial mortgage portfolio. You buy a building, improve it, increase its income, and the higher NOI drives a higher appraised value through forced appreciation in multifamily properties. You refinance at the new value, pull out equity, and use it as the down payment on your next deal.

The math is simple but powerful. If your building was worth $2 million when you bought it and is now worth $2.8 million, a refinance at 75% LTV gives you a $2.1 million mortgage. After paying off your original $1.5 million balance, you pocket $600,000 in equity — tax-free, because borrowed money is not income.

3. Debt Consolidation

You might have a first mortgage, a vendor take-back, and a line of credit all attached to the same property or portfolio. Multiple debts mean multiple payments, multiple rates, and multiple maturity dates to manage.

Refinancing can roll everything into a single mortgage with one payment, one rate, and one term. Simpler to manage and often cheaper overall.

4. Term Optimization

Your current term is about to mature and you want to lock in a better structure. Maybe you are on a three-year term and want to switch to a seven-year to reduce refinancing frequency. Or you are on a variable rate and want to lock in before rates climb.

Term maturity is the cleanest time to refinance because there is no breakage penalty. Take advantage of it.

5. Transition from Bridge to Permanent Financing

Bridge loans are short-term, high-interest products used to close quickly or stabilize a property before permanent financing is available. Once the property is stabilized — units are rented, renovations are complete, income is verified — you refinance out of the bridge loan into a permanent commercial mortgage at a much lower rate.

This transition is planned from day one. The bridge loan gets you in the door. The refinance is the exit strategy.

Model Your Refinance Scenario

When Refinancing Makes Sense (The Break-Even Analysis)

Before you commit to a commercial refinance, run the break-even calculation. This is non-negotiable.

The Formula

Total refinancing cost divided by monthly savings equals months to break even.

Total refinancing cost includes:

• Mortgage penalty (if breaking before term maturity)
• Legal fees ($3,000-$8,000 for commercial)
• Appraisal fee ($3,000-$10,000 depending on property size)
• Discharge fee from current lender ($500-$1,500)
• New lender fees or commitment fees (varies)
• Title insurance or survey updates

Example: Rate Reduction Refinance

• Current mortgage: $2.5 million at 6.25%, 3 years remaining
• New mortgage: $2.5 million at 5.25%
• Monthly savings: approximately $2,100
• Mortgage penalty (IRD estimate): $45,000
• Legal + appraisal + fees: $12,000
• Total cost: $57,000
• Break-even: $57,000 / $2,100 = 27 months

If you plan to hold the property for more than 27 months after closing, the refinance pays for itself. If you might sell within two years, hold off.

Example: Cash-Out Refinance at Term Maturity

• Current mortgage: $1.8 million (maturing, no penalty)
• New mortgage: $2.4 million at 75% LTV (property now worth $3.2 million)
• Cash extracted: $600,000
• Legal + appraisal + fees: $10,000
• Total cost: $10,000

No penalty because you are at maturity. You get $600,000 in equity for $10,000 in fees. If that $600,000 goes into a new property generating $60,000+ per year in cash flow, the return is enormous.

This is why timing your refinance to match your term maturity is so valuable. You can learn more about when refinancing makes sense for your rental portfolio.

Switching from Conventional to CMHC-Insured

This is one of the most underused strategies in commercial refinancing, and it deserves its own section.

Many investors buy multi-family buildings with conventional financing — 75% LTV, 25-year amortization, higher rates — because they did not know CMHC programs existed or the building did not qualify at the time of purchase.

After stabilizing the property and improving its energy efficiency or affordability metrics, you may now qualify for CMHC MLI Select. The benefits are substantial:

• Up to 95% LTV (versus 75% conventional)
• Up to 50-year amortization (versus 25)
• Lower interest rates because CMHC backing reduces lender risk
• A DSCR requirement of just 1.1 — the property only needs to earn 10% more than its debt payments

Switching from conventional to CMHC is not just a refinance — it is a complete restructuring that can free up hundreds of thousands of dollars in equity and dramatically improve your cash flow.

On a refinance, the CMHC insurance premium is typically 2.75% to 4.50% of the mortgage amount. On a $2 million refinance, that is $55,000 to $90,000 added to the mortgage. But the lower rate and longer amortization can more than offset that premium cost.

Run both scenarios — CMHC insured versus conventional — using the CMHC MLI max loan calculator and compare the total cost over your intended hold period.

The Step-by-Step Refinance Process

Commercial refinancing takes longer than residential. Expect 45 to 90 days from start to close, depending on property complexity and lender speed. Here is what happens at each stage.

Step 1: Assess Your Current Position (Week 1)

Before talking to lenders, get clear on your numbers.

• Pull your current mortgage statement: balance, rate, term, maturity date
• Calculate your estimated penalty (call your lender for the exact number)
• Gather your most recent NOI figures: actual rent roll, operating expenses, vacancy
• Know your property’s approximate current market value

Step 2: Engage a Commercial Mortgage Broker (Week 1-2)

A broker who specializes in commercial financing will shop your file across multiple lenders. This is not optional — it is essential. Commercial rates and terms vary far more between lenders than residential ones do.

Your broker will:

• Analyze your property’s financials and DSCR
• Identify which lenders offer the best terms for your situation
• Structure your application to maximize approval odds
• Negotiate rates, amortization, and covenants

Step 3: Property Appraisal (Week 2-4)

The lender orders a commercial appraisal. This is not the same as a residential drive-by. A commercial appraiser will:

• Inspect the property inside and out
• Review your rent roll and lease agreements
• Analyze comparable sales AND income metrics
• Prepare a detailed report with a formal value conclusion

Commercial appraisals cost $3,000 to $10,000+ depending on property size and complexity. A 100-unit apartment building costs more to appraise than a six-unit walkup.

Step 4: Underwriting and Approval (Week 3-6)

The lender’s underwriting team reviews everything: your appraisal, your financials, the property’s income, your experience, environmental reports, and the overall risk profile.

During this phase, expect questions and requests for additional documentation. Respond quickly. Delays here are the number one reason commercial refinances take longer than expected.

Step 5: Commitment Letter (Week 5-7)

Once approved, the lender issues a commitment letter outlining all terms: rate, LTV, amortization, term, covenants, and conditions. Review this carefully with your broker.

Pay attention to:

• Rate hold period (how long the quoted rate is guaranteed)
• Prepayment provisions (what flexibility you have during the new term)
• Financial covenants (ongoing DSCR or occupancy requirements)
• Conditions precedent to closing (what still needs to happen)

Step 6: Legal and Closing (Week 6-10)

Your lawyer handles the legal closing: reviewing mortgage documents, coordinating with the lender’s lawyer, registering the new mortgage, and discharging the old one.

Commercial closings involve more documentation than residential. Budget for higher legal fees accordingly.

Get Your Refinance Timeline Started

Required Documentation

Have all of this ready before you start the process. Missing documentation is the most common cause of delays.

Property documents:

• Current mortgage statement
• Property tax bill (most recent)
• Current rent roll with unit-by-unit breakdown
• All lease agreements
• Two to three years of operating statements (income and expenses)
• Insurance certificate
• Environmental Phase I report (if not already on file)
• Recent capital expenditure records

Borrower documents:

• Personal net worth statement
• Two to three years of personal tax returns
• Corporate financial statements (if property held in a corporation)
• Corporate tax returns
• Bank statements showing reserves
• List of all owned properties with mortgage details

For CMHC refinances, also include:

• Energy efficiency documentation
• Accessibility features documentation
• Affordability data (percentage of units at or below median rent)
• MLI Select scoring worksheet

Costs and Penalties: What You Will Actually Pay

Here is a realistic breakdown of costs for a commercial refinance in Canada.

The wildcard is the mortgage penalty. If you are refinancing at term maturity, the penalty is zero. If you are breaking a fixed-rate commercial mortgage early, the penalty depends on your contract. Some commercial mortgages are fully closed with no early prepayment. Others allow prepayment with a yield maintenance or interest rate differential penalty.

Always get the exact penalty amount in writing from your current lender before proceeding with a refinance. Do not estimate. The difference between your estimate and reality can be tens of thousands of dollars.

Understanding Prepayment Penalty Types

Different commercial mortgages use different penalty calculations. Here is what each one means.

Interest rate differential (IRD). The most common penalty type. The lender calculates the difference between your contract rate and the current market rate, multiplied by your remaining balance and the time left on your term. When rates have dropped significantly, IRD penalties can be substantial.

Three months’ interest. Some lenders offer this as the penalty formula. It is usually the cheaper option and is more predictable. On a $2 million balance at 5.5%, three months’ interest is approximately $27,500.

Yield maintenance. Common with CMHC-insured mortgages. This formula ensures the lender receives the same yield they would have earned had you kept the mortgage to maturity. It can be expensive, especially early in the term.

Defeasance. The borrower purchases government bonds that replicate the remaining mortgage payments. Complex and costly, but sometimes the only option on certain securitized commercial loans.

Use the DSCR loan calculator for Canadian commercial mortgages to model how your property’s debt coverage ratio changes under different refinance scenarios before committing to paying a penalty.

Real Numbers: Cash-Out Refinance to CMHC

Let me walk through a scenario that shows how switching from conventional to CMHC creates massive value.

The property: A 16-unit apartment building in Ontario.

• Original purchase price (3 years ago): $2,200,000
• Original mortgage: $1,650,000 (75% LTV conventional, 25-year amortization, 6.0% rate)
• Current mortgage balance: $1,540,000
• Improvements made: $180,000 (energy-efficient windows, common area upgrades, new kitchens in 6 units)
• Rent increases since purchase: $550/month across all units
• Annual NOI increase: $66,000
• Current appraised value (income approach at 5.25% cap rate): $3,100,000

The CMHC refinance:

• New CMHC MLI Select mortgage at 85% LTV: $2,635,000
• CMHC insurance premium: ~4% ($105,400, added to mortgage)
• Total new mortgage: $2,740,400
• Minus current mortgage payoff: $1,540,000
• Cash extracted: approximately $1,095,000
• New rate: 4.25% (CMHC-insured)
• New amortization: 40 years

Monthly payment comparison:

• Old mortgage: approximately $10,500/month (25-year am, 6.0%)
• New mortgage: approximately $11,800/month (40-year am, 4.25%, higher balance)

The monthly payment increased by $1,300, but the investor extracted over a million dollars in tax-free capital. That capital deployed into another multi-family building generating $80,000+ per year in NOI makes the entire transaction enormously profitable.

This is the strategy that investors who scale from 5 to 20 properties use to build their portfolios without waiting years to save for each down payment.

Mistakes That Kill Commercial Refinances

I see the same mistakes over and over. Avoid these.

Not knowing your penalty before starting. Investors spend weeks working through the process only to discover the penalty makes the whole thing uneconomical. Get the number first.

Incomplete documentation. Every missing document adds a week to your timeline. Gather everything before you start.

Overestimating property value. If you think your building is worth $4 million but the appraisal comes back at $3.5 million, your cash-out amount drops dramatically. Be realistic about your property’s income and the cap rates in your market.

Ignoring ongoing covenants. Commercial mortgages often include financial covenants — minimum DSCR, maximum vacancy, required insurance levels. Make sure you can meet these throughout the entire new term, not just on the day you close.

Not shopping multiple lenders. Commercial rates and terms vary more between lenders than residential ones do. Knowing which commercial mortgage lenders fit your deal matters. A broker who accesses five or six lenders might save you $50,000+ over the life of the mortgage compared to going direct to your bank.

Timing it wrong. Refinancing three years into a five-year term with a massive penalty rarely makes sense. Wait for maturity, refinance penalty-free, and save the penalty cost entirely.

Building Refinancing Into Your Portfolio Strategy

The best commercial investors do not think about refinancing as a one-off event. It is a built-in part of their acquisition and growth strategy.

When you buy a commercial property, you should already have a refinance plan. When will you refinance? What value-add work will you do to increase NOI? What LTV can you expect at refinance? How much equity will you extract, and where will it go?

This forward planning turns every property into a stepping stone to the next one. You buy, improve, refinance, and deploy the extracted capital into your next acquisition. It is the commercial version of the The BRRRR Method: Build a Rental Portfolio Fast — buy, renovate, rent, refinance, repeat — scaled up to apartment buildings and commercial assets.

Stagger your mortgage terms so you always have refinance opportunities coming up. Do not put all your properties on the same term. If everything matures in the same year and rates happen to be unfavorable, you lose optionality.

And always keep reserves. A cash-out refinance that drains every dollar of equity leaves you vulnerable to vacancies, repairs, or rate increases. Keep a buffer.

Build Your Refinance-to-Scale Plan

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LendCity

Published

February 8, 2026

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13 min read

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Commercial Properties Refinance Investment Strategy Mortgage Basics

Key Terms in This Article

Refinance

Refinance

Replacing an existing mortgage with a new one, typically to access equity, get a better rate, or change terms. Investors commonly refinance to pull out capital for purchasing additional properties (cash-out refinance) while retaining ownership of the original property.

Commercial Mortgage

Commercial Mortgage

Financing for commercial properties like retail, office, or multifamily buildings with 5+ units, with different qualification criteria than residential mortgages.

Cash Out Refinance

Cash-Out Refinance

Refinancing for more than you owe to pull out equity as cash, often used to fund down payments on additional investment properties.

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.

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.

NOI

NOI

Net Operating Income - the total income a property generates minus all operating expenses, but before mortgage payments and income taxes. Calculated as gross rental income minus vacancies, property taxes, insurance, maintenance, and property management fees.

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.

CMHC MLI Select

CMHC MLI Select

A CMHC program offering reduced mortgage insurance premiums and extended amortization (up to 50 years) for multifamily properties with 5+ units that meet energy efficiency or accessibility standards. Popular among investors scaling into larger apartment buildings.

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.

Prepayment Penalty Appraisal

Appraisal

A professional assessment of a property's market value, required by lenders to ensure the property is worth the loan amount.

Bridge Financing

Bridge Financing

Short-term financing (90 days to 1 year) that covers the gap between purchasing a new property and selling or refinancing another. Investors use bridge loans to act quickly on deals or fund renovations before long-term financing is in place.

Insured Mortgage

Insured Mortgage

A mortgage backed by mortgage default insurance from CMHC, Sagen, or Canada Guaranty, required when the down payment is less than 20% on owner-occupied properties. The insurance premium (ranging from 2.8% to 4% of the mortgage) is added to the loan. Insured mortgages qualify for lower interest rates because the lender's risk is covered by the insurer.

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

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