Commercial Mortgages in Canada: An Overview

A commercial mortgage in Canada is a loan secured by property used for business or investment — an office building, retail plaza, industrial warehouse, apartment block, hotel, or similar. Lenders assess it on the income the property generates and on your business financials, not on CMHC default insurance or the federal mortgage stress test. That one difference shapes how you qualify, how much equity you contribute, and how the loan is structured.

What Counts as a Commercial Property in Canada

For lending purposes, real estate generally splits into residential and commercial. Both owner-occupiers and pure investors land in the commercial bucket when the property is not a standard home. Common categories include:

• Multi-unit residential — purpose-built apartment buildings, often five units or more.
• Retail — storefronts, strip centres, and single-tenant plazas.
• Office — single-tenant or multi-tenant buildings.
• Industrial — warehouses, light manufacturing, and flex space.
• Mixed-use — ground-floor commercial with residential above.
• Special purpose — hotels, motels, restaurants, gas stations, self-storage, and care facilities.
• Development land — sites being assembled or prepared for construction.

Whether a fourplex or a live-work unit counts as commercial depends on the lender and on zoning, so confirm how your property will be classified before you shop. If your building blends residential and commercial uses, see mortgages for mixed-use properties.

How Commercial Lending Differs From a Residential Mortgage

The residential playbook — GDS and TDS ratios, CMHC mortgage default insurance, the stress test, and a down payment tied to purchase price — largely does not apply here. Commercial lenders care about the property as a business, and about the borrower behind it.

Feature	Residential mortgage	Commercial mortgage
Main qualification test	Borrower income and GDS/TDS ratios	Property income and debt service coverage
CMHC default insurance	Available on eligible homes	Not the norm; specific CMHC programs exist for qualifying multi-unit rental
Federal stress test	Generally applies	Typically replaced by the lender's own debt service test
Amortization	Often up to 25 years, longer on some insured loans	Often shorter, and sometimes not offered at all
Term	Commonly three to five years	Frequently shorter, with more renewal risk
Equity required	Can be modest on an insured owner-occupied home	Typically much larger, reflecting lender risk
Rate pricing	Tied to residential prime and bond yields	Often priced higher, with lender-specific spreads

For background on the residential side of that table, see the explainer on GDS and TDS ratios.

How Lenders Underwrite a Commercial Mortgage

Expect a deeper analysis than a home purchase. Most lenders work through the same core metrics.

Net operating income (NOI)

Take the property's rental income, subtract a vacancy allowance and operating expenses such as property tax, insurance, maintenance, and management, and you have NOI. It is the number the loan is built around.

Debt service coverage ratio (DSCR)

DSCR compares NOI to the annual mortgage payments. Lenders want a cushion, meaning income should exceed debt payments by a comfortable margin. Ask each lender for their current minimum, because it varies with property type, tenant quality, and borrower strength.

Loan-to-value (LTV)

The lender sets a maximum loan against the appraised value. Commercial appraisals are income-based, so a weak rent roll or a highly specialized building can push the value — and your maximum loan — down.

Your covenant and experience

Most commercial loans are personally guaranteed, at least in part. Lenders weigh your net worth, liquidity, credit history, and track record with similar properties. If you are self-employed, an accountant-prepared statement of business income does much of the talking — see mortgages for self-employed Canadians.

Where to Get a Commercial Mortgage in Canada

This market is broader, more fragmented, and less uniform than the residential market.

• Chartered banks — competitive pricing for strong borrowers, but strict on property type and experience.
• Credit unions and caisses populaires — often more flexible on local and unusual properties.
• Life insurance companies and pension funds — long-term money for larger, well-leased assets.
• Private and bridge lenders — faster and more flexible, at a higher cost, often used for value-add projects.
• CMHC MLI Select — federal mortgage loan insurance aimed at qualifying multi-unit rental properties that meet affordability, energy, and accessibility criteria. Confirm current program rules and eligibility on the CMHC website.

Commercial loans are not governed by OSFI's residential underwriting guideline in the same way, so terms vary widely from one lender to the next. Because pricing is risk- and relationship-based rather than posted, comparing offers matters even more than it does on a home. The mechanics are covered in how mortgage rates work in Canada.

Costs, Documents, and the Application Process

Budget for expenses beyond the purchase price: commercial appraisals, environmental reviews such as a Phase 1 assessment, building condition reports, legal fees, title insurance, and land transfer tax. Expect the property itself to be reviewed for zoning compliance, lease quality, and deferred capital needs.

A typical application package includes:

1. Two to three years of financial statements for the property and for your business.
2. Personal net worth statements and personal tax returns for every guarantor.
3. A current rent roll and copies of the leases.
4. Property tax bills, insurance details, and a recent appraisal or purchase agreement.
5. A business plan or projection for value-add, construction, or start-up properties.

What to Watch For Before You Sign

Three risks show up again and again. First, renewal risk: shorter terms mean you renegotiate sooner, and your options then depend on how the property is performing and on the lending climate. Second, prepayment terms: commercial loans can carry restrictive payout language, so read the fine print before you commit. Third, concentration: tying too much of your net worth to one tenant or one building amplifies the downside if that tenant leaves.

Once you know your numbers, test different financing scenarios with the mortgage payment calculator, and confirm every figure with your lender before you sign. For a closer look at income-producing residential buildings, compare with mortgages for rental properties.