Commercial Mortgage Financing in Canada

Commercial mortgages are underwritten primarily on the property's income (NOI) and DSCR, whereas residential mortgages focus on personal income and credit. Rates are typically higher, and terms range from 1 to 25 years. Additionally, commercial properties require more extensive due diligence, such as environmental assessments and structural reports.

Debt Service Coverage Ratio (DSCR) is the property's Net Operating Income divided by its annual debt obligations. Lenders typically look for a DSCR of 1.2x or higher to ensure the property can cover its mortgage payments. It is the single most important metric in commercial lending.

Down payments vary by property type. While CMHC-insured multi-family can be as low as 5% down, most conventional commercial mortgages (office, retail, industrial) require 25% to 35% down.

Lenders require a Phase 1 Environmental Site Assessment (ESA) to ensure there is no contamination on the property. If the Phase 1 shows potential issues, a Phase 2 (soil testing) may be required. This is standard for almost all commercial real estate transactions in Canada.

Commercial rates are usually pegged to the Government of Canada Bond yields plus a "spread" (margin) based on the property's risk. They are generally 0.75% to 2% higher than residential rates, though CMHC-insured multi-family rates can be very competitive.

Yes, most commercial mortgages have "Yield Maintenance" or "Defeasance" penalties if you pay them off early. Unlike residential mortgages where the penalty is often 3 months' interest, commercial penalties can be substantial. We help you choose terms that match your investment horizon.

Recourse debt means the lender can go after your personal assets if the property defaults. Non-recourse debt (often available for CMHC or high-quality stabilized assets) limits the lender's recovery to the property itself.

Yes. Mixed-use properties (e.g., retail on the main floor, residential above) are very common. Lenders evaluate both income streams, though they often require the commercial portion to be less than 50% of the square footage for certain residential-leaning programs.

MLI Select is a points-based mortgage insurance program for multi-family properties that offers incentives like lower premiums, higher LTVs (up to 95%), and longer amortizations (up to 50 years) for meeting affordability, accessibility, and energy efficiency targets.

Commercial deals take longer than residential. Expect 45 to 90 days from application to funding, depending on the complexity of the property and the speed of third-party reports like appraisals and environmental assessments.