Commercial or residential mortgage: what are the differences?

The two kinds of mortgage look alike on paper: a loan secured by a building. In practice, the rules change.

This guide compares them point by point, using benchmarks published by BDC and CMHC.

What is the basic difference?

A residential mortgage finances a home you live in. A commercial mortgage finances a building used for a business or to earn income.

BDC writes that a residential mortgage generally cannot be used to buy a commercial property. Going the other way is not advantageous either, in its view.

So the lender is not judging the same application. In one case it looks mostly at the borrower. In the other it also looks at the building and its earnings.

How does the risk change?

According to BDC, commercial mortgages are riskier for the lender and for the borrower. They generally carry higher rates and fees.

BDC notes that the building can also be harder to resell. That weighs on what the lender will agree to finance.

It adds that many commercial loans are call loans. The lender can demand repayment at any time.

Here are the main points, according to BDC.

• Down payment: 20% or more of the price, against a lower one on the residential side.
• Amortization: usually 20 years or less for commercial.
• Loan-to-value: generally lower, so more of your own capital goes in.
• Ongoing costs: 0.5% to 1% of the loan amount per year.
• Resale: slower, which makes the lender more cautious.

What does the lender base its decision on?

For a business loan, BDC says cash flow is the most important indicator. The lender wants to see that the money is enough to pay the debt.

It also looks at financial statements, assets, management experience and the credit score of the business and its owners.

The debt service coverage ratio sums up this logic. It compares income with the year's payments. A separate guide explains it in detail.

Purchases of rental buildings follow the same idea. The income of the building counts as much as the buyer's salary.

What happens with a building that has apartments?

A rental building can be financed like a commercial property. CMHC also offers mortgage loan insurance for standard rental housing.

According to the CMHC page, the building must have at least 5 rental units. It must also be at least 70% residential by floor area and by loan value.

The maximum loan-to-value is 85%. Amortization can run up to 40 years for an existing building and 50 years for new construction.

The borrower must also have at least five years of multi-unit management experience, or employ a manager who does. Net worth must reach 25% of the loan value.

These conditions come from the page consulted on October 13, 2026. CMHC can change them, and the lender can add its own.

Which clauses deserve a close read?

Commercial contracts are more varied. Read the following clauses before signing.

• Whether the loan is a call loan, if it is one.
• Prepayment penalties. The Financial Consumer Agency of Canada says they can reach thousands of dollars.
• The security required: the building, other assets, sometimes a personal guarantee.
• Appraisal, survey and legal fees.

BDC specifies that term length and amortization are not the same thing. The term is the period during which the contract conditions apply.

At renewal, the rate is renegotiated. Payments can then go up or down.

How do you pick the right framework for your project?

Start with the question of use. If the building serves a business, or holds a large number of units, you are on the commercial side.

If you are buying a house to live in, the residential framework applies. A mixed building, with shops and apartments, needs a specific analysis.

CMHC sets a ceiling on the non-residential share in its programs. If your building has a lot of it, the lender may treat it differently.

In both cases, compare several lenders. The agency says the lender type influences the rate and the gap can be worth thousands of dollars.

The type of lender matters too. The agency lists banks, credit unions, financing companies and mortgage investment companies among the possible lenders. Each applies its own rules, and each may read the same building differently.

A mortgage broker, according to the agency, does not lend directly. A broker puts the borrower in touch with lenders. That can help you compare without multiplying the steps.

Ask the lender to explain in writing how it classifies your property and which of its programs apply. Wording on a term sheet matters as much as the headline figure.

Finally, remember that ratios, insurance and programs change. The figures in this guide date from October 13, 2026 and should be rechecked with the lender.

What should you do next?

Note the exact use of the building, the number of units and the share of shops. These three facts point to the type of loan.

Then work out your down payment at 20% and 25%, plus a budget for side costs. Keep a reserve for surprises. Lenders like to see that a buyer has planned for costs beyond the price.

PMECAP is a free comparison site. It explains the financing families and passes your request to a mortgage brokerage firm registered with the AMF. It does not lend.

Read the guide on rates and down payment on a commercial loan, then the multi-unit family or the commercial family.

FAQ

Sources

• BDC – Qu'est-ce qu'une hypothèque commerciale (glossaire) (accessed October 13, 2026)
• BDC – How a bank looks at your business (accessed October 13, 2026)
• SCHL – Assurance prêt hypothécaire pour logements locatifs ordinaires (accessed October 13, 2026)
• ACFC – Choisir le bon prêt hypothécaire (accessed October 13, 2026)