Commercial mortgage in Canada is always an option for homebuyers who want to own a house. Availing it is one way you can get funding to purchase or improve a commercial property. It is a primary financing option that you can get to jumpstart a new business venture or to improve on one that you’ve already got going. Whatever the reason is for getting a mortgage, you might still have questions about it that need some answers, and we are here to provide them.

A Brief Look into Commercial Mortgages

As a refresher, let us look into what a commercial mortgage is, along with several important details you might like to be reminded about. 

Put, a commercial real estate mortgage is a loan that you take out wherein you use commercial property as collateral. Usually, you need to belong to a company or business to qualify as a borrower for this type of loan. Your business could be a partnership, incorporation, or a limited company. As a result, credit history assessment for this kind of mortgage is more complex than a residential mortgage, which only needs to evaluate a single individual.

There are different types of properties for which you can get a commercial mortgage in Canada. It is important to know which to understand whether the property you like to buy is considered commercial or not, especially if you plan to get into residential real estate. 

Residential complexes with five or more units and mixed-use properties combined with commercial and residential units are considered commercial real estate. Other types of commercial properties include retail, office, and industrial buildings. Farmland is under the commercial real estate category as well. 

The expected time frame in getting a commercial loan is longer compared to a residential loan. Getting a residential mortgage may take as long as 90 days or as short as 2 to 3 weeks, while a commercial mortgage will take 60 days to a year to process and close.

There is also a set of qualifications to getting a commercial mortgage, the benchmark for which is loftier considering that the loan value. The criteria include credit history, debt service coverage ratio, type of business, the current situation of the company, and the amount of the deposit. 

Do I need a deposit for a commercial mortgage in Canada?

Now, this is probably one of the most common questions in your mind, especially if you are poised to get funding for a commercial real estate property you’re interested in buying. While homebuyers can get a no down payment mortgage, there is no such thing for retail investors. The reason for this is a no-brainer.

However, the amount you need for a deposit will depend largely on your lender and the type of property you want to buy. It could be between 20% and 40% of a property’s purchase amount. Therefore, you can expect your deposit on a commercial complex to be higher than that for a duplex. The standard deposit amount will also depend on whether you are availing of a first or a second mortgage.

Below is a list of commercial properties along with the minimum amount of deposit to expect when you avail of a commercial mortgage in Canada for them:

Multi-family residential properties – 15%

Mixed-use properties that come with storefronts and apartments – 15%

Office buildings – 20%

Commercial complex or plaza – 20%

Retail properties – 20%

Industrial properties like warehouses, fulfillment centers – 20%

Construction and development projects – 25%

Farmland – 35%

Private institutions offer commercial mortgages in Canada that provide funding to borrowers who can only pay a lower deposit than what banks normally require. It might be worth researching which of these lenders are to have all options available to you.

You can also reduce the amount needed for a deposit if you have your mortgage insured by the Canada Mortgage and Housing Corporation or CMHC. This could also help lower the interest rate of your mortgage, depending on its amortization terms. 

However, you need to know that getting insurance for a commercial property is more complex than a residential property. You see, CMHC may insure a mixed-used property that requires a deposit of 15% but won’t do the same for a purely commercial property. This is mainly because lenders can be assured that borrowers make payments on time for their own homes. However, they could easily defer payments for commercial mortgages when their businesses are not going well or have gone bankrupt.

So, as you can see, you really need a deposit for getting a commercial mortgage in Canada or anywhere else in the world. This provides an amount of security for your lender and ensures that you, as a borrower, will have a share of the money placed on your business venture. As you will have more to lose in the long run, you will be more responsible in taking care of your investment.

For More Information, Contact:

John (Adam) Watson, CEO, CanCap Mortgage Group Inc. 

Email:   Tel: 416-452-5281