Your Complete Guide to Commercial Mortgages

Commercial mortgages in Canada differ from residential mortgages in several key ways:

• Purpose: Used for income-producing properties vs. personal residence
• Down Payment: Typically 20-35% vs. 5-20% for residential (residential can be lower with CMHC insurance)
• Qualification: Based on property income potential (DSCR) and business financials, not just personal income
• Interest Rates: Generally 0.5-2% higher due to increased risk and no mortgage insurance options
• Terms: Shorter terms (1-10 years) though amortization can be up to 25 years (or 30 years for multi-unit residential)
• Documentation: More extensive, including business financials, property income statements, and environmental assessments
• Stress Test: Commercial mortgages are exempt from the federal mortgage stress test that applies to residential properties in Canada

Down payment requirements vary by property type and use:

• Owner-Occupied: 20-25% down (you'll use the property for your business)
• Investment Properties: 25-35% down (rental income property)
• Multi-Unit Residential (5+ units): 20-25% down
• Special Purpose Properties: 30-35% down (hotels, gas stations, etc.)

The exact amount depends on your credit profile, the property's income potential, and the lender's requirements. Properties with strong cash flow and good condition may qualify for lower down payments.

DSCR is a key metric lenders use to evaluate whether a property generates enough income to cover the mortgage payments. It's calculated as:

Most lenders require a minimum DSCR of 1.20-1.25, meaning the property must generate 20-25% more income than needed to cover mortgage payments. This buffer protects the lender against vacancies, unexpected expenses, or market downturns.

Example: If your annual mortgage payments are $100,000, you'd need at least $120,000-$125,000 in net operating income to qualify.

Yes! This is called an "owner-occupied" commercial mortgage and is often more favorable than investment property loans. Benefits include:

• ✓ Lower down payment requirements (20-25% vs. 30-35%)
• ✓ Better interest rates
• ✓ Qualification based on both business income and rental income (if applicable)
• ✓ Build equity while operating your business

Typically, you must occupy at least 51% of the property to qualify as owner-occupied. If you plan to lease out additional space, that rental income can help you qualify for a larger loan.

The timeline for commercial mortgage approval varies by complexity, but here's a typical breakdown:

• Pre-qualification: 1-3 business days
• Full application submission: 2-3 days (if documents are ready)
• Underwriting review: 1-2 weeks
• Property appraisal: 1-2 weeks
• Conditional approval: 3-7 days after appraisal
• Final approval to closing: 1-2 weeks

Total timeline: 4-8 weeks from application to closing for a straightforward deal. Complex transactions (construction loans, mixed-use properties, or unique situations) may take 8-12 weeks. Having all documentation ready upfront can significantly speed up the process.

Commercial mortgage rates in Canada are typically 0.5% to 2% higher than residential mortgage rates and vary based on several factors:

• Property Type: Lower risk properties (multi-unit residential, office) get better rates than higher risk (hotels, restaurants)
• Occupancy: Owner-occupied properties typically receive better rates than pure investment properties
• Down Payment: Larger down payments result in lower rates
• Credit Score: Higher credit scores (680+) qualify for the best rates
• Property Income: Strong DSCR ratios (1.25+) lead to better pricing
• Loan Term: Shorter terms often have lower rates
• Lender Type: Banks, credit unions, and alternative lenders have different rate structures

Current commercial mortgage rates in Canada typically range from approximately 6% to 11% depending on these factors and the Bank of Canada's prime rate. Contact me for a personalized rate quote based on your specific situation and the current market.

Absolutely! Commercial mortgage refinancing in Canada can help you:

• ✓ Lower your interest rate and reduce monthly payments
• ✓ Access equity for renovations, expansion, or other investments
• ✓ Consolidate debt by rolling other business loans into your mortgage
• ✓ Switch from variable to fixed rate (or vice versa)
• ✓ Extend amortization to reduce monthly payments
• ✓ Remove or add partners from the mortgage

Most Canadian lenders allow refinancing after you've held the property for at least 6-12 months. You'll need updated financial statements, a new appraisal, and current property income documentation.

Important: Check your current mortgage for prepayment penalties (often called "IRD" - Interest Rate Differential - for fixed-rate mortgages) before refinancing. Commercial mortgages in Canada may have significant penalties for early repayment, especially if you're locked into a fixed term. Some lenders offer portable mortgages or blended-and-extend options to minimize penalties.

While not legally required, working with a commercial real estate broker is highly recommended because:

• ✓ They have access to off-market properties and insider knowledge
• ✓ They understand property valuation and can spot good deals
• ✓ They can help negotiate better terms and prices
• ✓ They know how to analyze property income and expenses
• ✓ The seller typically pays the broker's commission, not you

As your mortgage agent, I work alongside your real estate broker to ensure the financing aligns with your purchase. Together, we create a seamless experience from property search through closing.