Commercial mortgages in Canada: what actually sizes your loan

A commercial mortgage is a loan secured against income-producing or business-occupied real estate — an apartment building of five units or more, a plaza, a warehouse, an office floor, a mixed-use main street building. Unlike a residential mortgage, it is not sized by what you earn. It is sized by what the property earns, tested against a coverage ratio the lender sets.

That single difference explains almost everything that surprises first-time commercial borrowers. Why the bank cut your loan by $400,000 after the appraisal. Why the lender imputed a 5% vacancy on a fully leased building. Why they charged you a management fee you do not actually pay. Why the amortization matters more than the rate. None of it is arbitrary; it is all downstream of the debt service coverage ratio.

This page walks through the real mechanics: how net operating income is adjusted, how DSCR and loan-to-value interact, what leverage looks like by asset class, where 2026 pricing actually sits, and what a commercial file costs to close. The numbers here are ranges, because commercial pricing genuinely varies by market, asset class, tenant covenant and sponsor strength. Anyone quoting you a single national rate for commercial property is guessing.

When people start looking for a commercial mortgage broker

Commercial files rarely start calmly. These are the six situations that send owners and investors looking for a second set of lenders.

How is a commercial mortgage different from a residential mortgage?

A commercial mortgage is underwritten on the property's income, not the borrower's. The lender builds a normalized operating statement, arrives at a net operating income, and lends the amount that income will service at a set coverage ratio. Your personal credit and net worth still matter — they support the guarantee — but they do not size the loan.

The practical differences run right through the deal. Terms are shorter: 3 to 10 years is the normal band, against 5 years as the residential default. Amortization is usually 20 to 25 years for commercial asset classes, with 25 to 30 available on multi-residential and up to 50 on CMHC-insured multi-unit. Almost every commercial loan requires a personal or corporate guarantee, and most are full recourse unless the deal is strong enough to negotiate otherwise.

One difference matters more than borrowers realise, and almost nobody mentions it. Section 10 of the federal Interest Act gives borrowers the right to prepay a mortgage after five years with only three months' interest — but section 10(2) says that right does not apply to mortgages given by corporations. If you hold title in a numbered company, which nearly every commercial borrower does, that statutory protection is gone. Your prepayment terms are whatever the commitment letter says, and yield maintenance clauses are common. Read that clause before you sign, not before you sell.

Commercial vs residential mortgage in Canada

DSCR: the number that actually sizes your commercial mortgage

The debt service coverage ratio is net operating income divided by annual debt service. DSCR = NOI ÷ annual principal and interest payments. A DSCR of 1.25 means the building throws off $1.25 of net income for every $1.00 of mortgage payment. Lenders set a minimum, and that minimum, not the loan-to-value ratio, is usually what caps your loan.

Here is the part that costs people money. The NOI in the lender's model is not the NOI in your spreadsheet. Underwriters normalize it, and the adjustments almost always go one way. Banks impute a 5% to 10% vacancy and credit loss even on a building that is 100% leased with a waiting list. Institutional lenders impute a 3% to 5% management fee even when you manage it yourself and take no fee. They add a structural replacement reserve, typically $200 to $300 per unit per year on multi-res. They strip out mortgage interest, depreciation, income tax, and any one-time or owner-benefit expenses.

Work an example. Twenty-four apartments in Barrie at $1,675 a month is $482,400 of gross potential rent. Subtract an imputed 5% vacancy of $24,120, add $14,400 of parking and laundry, and effective gross income is $472,680. Take out property tax of $58,000, insurance of $19,400, utilities of $61,000, repairs of $38,000, caretaking of $18,000, a $6,000 structural reserve and an imputed 4% management fee of $18,907, and NOI is $253,373. At a 1.20 coverage ratio, that supports $211,144 of annual debt service — which on a 30-year amortization at 5.20% is a loan of roughly $3.2 million.

Change one input and the loan moves. Drop the amortization from 30 years to 20 and the same NOI at the same coverage ratio supports about $2.6 million instead. Raise the tested rate by 1% and it falls again. This is why the amortization line on a term sheet is worth more attention than a 10 basis point difference in rate.

Typical minimum DSCR by lender type (verify per lender — these move)

Commercial mortgage down payment and LTV by asset class

Leverage in Canadian commercial lending is set by asset class first and by deal quality second. Multi-residential gets the most, because tenants are diversified and demand is deep. Special-purpose assets get the least, because if the lender takes it back there may be one buyer in the province.

The ranges below reflect what conventional lenders were writing through 2026. They are ranges rather than promises because the top of each band is earned. A 15-year-old, fully leased industrial building with a national covenant tenant and an experienced sponsor gets a different answer than an empty flex building with a first-time buyer, even in the same asset class in the same city.

Budget separately for closing costs. On a commercial purchase, expect roughly 3% to 5% of the price on top of the down payment: appraisal, environmental, legal, lender fee, land transfer tax and due diligence. Those costs are cash, they are not financeable, and they are the single most common reason a commercial buyer runs short at closing.

Typical conventional leverage by asset class, Canada 2026

Ways to close the down payment gap

A vendor take-back mortgage is the most underused tool in Canadian commercial real estate. The seller carries a second mortgage behind your first, often at a below-market rate for two to five years, which reduces the cash you bring on day one. Sellers accept them for tax deferral, for a higher price, or simply because the alternative is no sale. Your first mortgage lender has to permit it and will want it postponed and standstill-covenanted, so raise it early.

The other routes are refinancing equity out of a property you already own, bringing an equity partner into the holding company, or using a small second-position loan from an alternative lender. Each has a cost. What you should not do is arrive at the lawyer's office short and hope.

Cap rates: how a lender decides what your building is worth

A capitalization rate converts income into value. Value = NOI ÷ cap rate. The same $253,373 of net operating income is worth $5,067,460 at a 5.00% cap, $4,826,152 at 5.25%, and $4,606,782 at 5.50%. A quarter-point move in the cap rate changed the value by roughly $240,000 and, at 70% leverage, changed the loan by about $168,000.

You do not choose the cap rate; the appraiser derives it from recent sales of comparable buildings in your submarket. What you can influence is the numerator. Every dollar of durable, verifiable NOI you add is worth roughly twenty dollars of value at a 5% cap. That is why lenders care about lease terms, escalation clauses, recovery structures and tenant covenants far more than they care about how new your lobby looks.

Cap rates in 2026 vary widely by asset class and by market, and they move with bond yields. The five-year Government of Canada yield sat around 3.3% in August 2026. Multi-residential in strong Ontario and BC markets trades tighter than industrial; secondary-market retail and office trade wider. We do not publish a national cap rate table, because a single number across Canada would be misleading — ask us for recent comparable sales in your submarket instead.

Commercial mortgage rates in Canada: think in spreads, not headlines

Commercial mortgage rates are quoted as a spread over a benchmark, not as a posted rate. Fixed-rate term debt is priced over the Government of Canada bond of matching term. Floating construction, land and bridge facilities are priced over prime. That is why a single advertised commercial rate is close to meaningless, and why two lenders can quote the same deal 90 basis points apart.

The benchmarks as of August 2026: the Bank of Canada policy rate is 2.25%, held since October 2025 through six consecutive decisions, with the next announcement on September 2, 2026. Canadian prime is 4.45%. The five-year Government of Canada yield has been trading around 3.3%, and lenders repriced fixed rates upward by five to twenty basis points in mid-August after a firmer inflation print.

Apply the typical spreads to those benchmarks and you get a defensible range rather than a fictional headline. Conventional term debt on stabilized commercial property has generally priced at roughly the Government of Canada yield plus 1.5% to 3%. CMHC-insured multi-unit prices far tighter, at roughly the Canada Mortgage Bond yield plus 0.5% to 1%. Floating facilities price at prime plus 1% to 3% for construction and land, and prime plus 3% to 6% for bridge.

Commercial pricing framework, August 2026 (spreads, not quotes)

What does a commercial mortgage cost to arrange?

Commercial closing costs are larger and less predictable than residential ones, and they are payable whether or not the deal funds. Budget for them as cash from the first conversation.

A commercial appraisal typically runs $2,000 to $6,000 and takes three to six weeks depending on asset class and market. A Phase I environmental site assessment runs roughly $2,000 to $5,000 and is required on virtually every commercial property; if it flags anything, a Phase II can run $5,000 to $25,000 and add a month. Legal fees generally land at $2,000 to $5,000 for a straightforward file and considerably more with multiple tenants, easements or a corporate structure. Lender origination or commitment fees are commonly 0.5% to 2% of the loan, and a portion is usually payable on acceptance and non-refundable.

Timelines are the other cost. Expect three to five business days for an indicative term sheet, two to four weeks to a formal commitment once a complete package is in, and 30 to 45 days from commitment to funding. Building inspection reports, tenant estoppel certificates and survey work sit on the critical path more often than credit does.

• Appraisal $2,000 to $6,000, three to six weeks
• Phase I environmental site assessment $2,000 to $5,000; Phase II $5,000 to $25,000+
• Legal $2,000 to $5,000 and up, depending on tenants and structure
• Lender origination or commitment fee 0.5% to 2% of the loan
• Building condition or property condition assessment $2,500 to $8,000 on larger assets
• Survey or reference plan, title insurance, and corporate opinions
• Land transfer tax where applicable — nil in Alberta and Saskatchewan

What documents does a commercial mortgage application need?

Commercial underwriting is document-heavy, and the gap between a fast approval and a slow one is almost entirely about how complete the first submission is. Lenders form a view of the sponsor from the quality of the package, which is a real, if unfair, part of the process.

The property package and the sponsor package are assessed separately. The property has to demonstrate durable income; the sponsor has to demonstrate the capacity to own it through a downturn and the experience to operate it. Weakness on one side can sometimes be offset by strength on the other — a first-time owner with a triple-net-leased building and a national tenant is a very different file than an experienced operator with a half-empty building.

We collect everything digitally, run it through an AI-assisted first-pass review that flags the gaps and the inconsistencies before a lender sees them, and submit one clean package to multiple lenders at the same time rather than sequentially.

• Rent roll with unit or suite, area, rent, term, options and escalations
• Two to three years of operating statements plus a current year-to-date
• Copies of all leases, offers to lease and estoppel certificates
• Current property tax bill, insurance certificate and utility history
• Purchase and sale agreement or existing mortgage statement
• Corporate structure chart, articles, and financial statements for the borrowing entity
• Personal net worth statement and credit consent for every guarantor
• Sponsor real estate schedule showing all properties owned, with debt and equity
• Environmental history and any prior Phase I or Phase II reports

Should you use a bank or a commercial mortgage broker?

Use both. Go to your bank, and then have the same package shopped in parallel. A bank can only offer its own credit box, and a commercial credit box is narrower and more idiosyncratic than a residential one. One lender will not touch a building with an anchor tenant inside 24 months of expiry; another will, with a rollover reserve. One caps multi-res amortization at 25 years; a credit union next door writes 30. Those two differences alone moved the loan by $600,000 on a file we describe further down this page.

The value of a broker on a commercial file is not the rate. It is the structure. Amortization, coverage ratio, recourse, holdbacks, prepayment mechanics, covenant tests and reporting requirements move the economics of a commercial loan far more than 15 basis points does. A term sheet compared line by line against three others is worth more than a rate quoted in isolation.

Broker compensation on commercial deals is usually paid by the borrower rather than by the lender, and it should be disclosed in writing before any work is done. Ask for the fee, the trigger, and whether it is payable if you decline the offers.

How Lendmax places a commercial mortgage

Most commercial deals are lost to time, not to credit. A maturity date arrives, an appraisal comes in soft, a lender goes quiet in week three, and suddenly there is no runway to go anywhere else. We work the file so that the alternatives already exist when the first answer disappoints.

We do the underwriting before the lender does. If the coverage ratio does not work at 25 years, we know it in the first 48 hours and we go looking for the lenders who write 30, instead of finding out in week four.

1. We build the lender's operating statement, not yours — We normalize your NOI the way an underwriter will: imputed vacancy, imputed management fee, structural reserve, one-time expenses stripped out. Then we solve for the loan at each lender's coverage ratio and amortization, so you see the real number before anyone orders an appraisal.
2. Digital document collection with an AI-assisted first pass — Leases, rent roll, operating statements, corporate documents and guarantor packages come in through a secure portal. An AI-assisted review flags missing estoppels, rent roll inconsistencies and expense gaps in hours, so the submission that reaches lenders is complete on the first pass.
3. Parallel submission to banks, credit unions and alternative lenders — The same package goes to lenders with genuinely different credit boxes at the same time: schedule I banks, credit unions that write longer amortizations, CMHC-approved lenders on multi-res, and alternative or private lenders where the story needs time. Sequential shopping burns the calendar you do not have.
4. Term sheets compared line by line, then negotiated — We put every offer side by side on rate, term, amortization, coverage test, recourse, holdbacks, prepayment mechanics, covenants, reporting and total fees. Then we go back to the lenders with the comparison and negotiate the terms that actually change your economics.

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