… Why Commercial Mortgages Cost More Than Residential
So you’ve got a few rentals under your belt, things are going smoothly, and now you’re eyeing your next big play—maybe a sixplex or a mixed-use building. You reach out to your lender, expecting the same ol’ mortgage experience, and then it hits you:
“Sorry, this is a commercial deal. The rate will be higher.”
Higher? How much higher? And why?
Whether you’re a real estate investor, a curious homeowner, or a savvy realtor helping clients grow their portfolios, understanding the difference between commercial and residential mortgage rates can save you from sticker shock—and help you make smarter, faster financing decisions.
Let’s break it all down, in plain English.
In this article, I’ll uncover:
The Key Differences: Commercial vs. Residential Mortgage Rates
Why Commercial Mortgage Rates Are Higher
Typical Rate Tiers for Commercial Lending
The Key Differences: Commercial vs. Residential Mortgage Rates
Here’s where the rubber meets the road. At first glance, a mortgage is a mortgage. But once you move into the commercial space—especially with corporate-owned properties or 5+ unit buildings—the rules (and the rates) change dramatically.
| Feature | Residential Mortgage | Commercial Mortgage |
| Interest Rates | Lower (typically prime + 0.5% to 2%) | Higher (typically prime + 1.5% to 3.5% or more) |
| Rate Type | Fixed or variable; lots of options | Mostly fixed; limited flexibility |
| Rate Range | 4.00% – 6.00% | 6.75% – 9.00% (and up) |
| Term Options | 1–10 years, even open terms | 1–5 years, usually fixed terms only |
| CMHC-Insured Rates | Much lower for owner-occupied or rentals | Available for certain assets, but more restrictive |
Why Commercial Mortgage Rates Are Higher
Alright, let’s answer the big question: Why does commercial cost more?
Here’s what lenders are looking at behind the scenes:
Risk, Risk, Risk
Residential mortgages are underwritten based on you—your income, your credit, your employment. Lenders see you as the borrower, and they bet that you’ll prioritize paying your mortgage to keep your home.
Commercial mortgages, on the other hand, are underwritten based on the property’s performance. If the tenants don’t pay rent or the building’s income drops, your ability to pay might disappear too. That’s a bigger risk.
No Mortgage Insurance (or harder to get)
Most residential deals are insured through CMHC, Sagen, or Canada Guaranty. These insurers protect the lender, allowing them to offer lower rates.
In commercial? There is CMHC commercial insurance, but it’s not easy to get. If your building doesn’t meet the criteria—or if you’re buying in a corporation—you’re likely looking at uninsured rates, which are always higher.
Less Liquidity
If a borrower defaults, lenders can quickly sell a house or condo. A 12-unit apartment building in a small town? Not so easy. The resale market is thinner, and recovery takes longer—so lenders price that in.
More Complex Underwriting
Commercial lending isn’t plug-and-play. Every deal requires custom analysis—debt service coverage ratios (DSCRs), rent rolls, lease reviews, environmental reports, and more. That complexity costs money.
Typical Rate Tiers for Commercial Lending
Here’s a ballpark guide to what commercial rates look like in today’s market, depending on the lender type and deal quality:
A-Lenders (Banks & Credit Unions):
- 6.75% to 7.50%
- Low loan-to-value, strong DSCR (1.30+), clean property
- Requires strong borrower covenants and financials
Alt Commercial / B-Lenders:
- 7.50% to 9.00%
- Tolerate lower DSCR or higher LTV
- Great for investors in growth mode but without full documentation
Private & MIC Lenders:
- 9% to 12%+
- Fast closings, flexible terms, minimal documentation
- Used when time or uniqueness outweighs cost
Some Real-World Examples
Example 1: Residential 4-Plex
- Owned in personal name
- Appraised value: $950,000
- 5-year fixed rate: 5.29%
- CMHC-insured; standard lender
- Total lender fee: $0
Example 2: Commercial 6-Plex
- Owned in a holding company
- Appraised value: $1,200,000
- 5-year fixed rate: 7.89%
- Requires DSCR of 1.25, full appraisal, ESA Phase 1
- Lender fee: 0.75% of loan amount
- Borrower pays both sides of legal fees (~$6,000)
The difference?
One is based on you, and the other is based on the business of real estate. The second needs to stand on its own feet financially—and the lender makes sure it does.
How Realtors and Clients Can Use This Information
For Realtors:
- Set realistic expectations with investor clients. A six-unit apartment deal won’t get residential terms.
- Encourage clients to budget for higher rates and fees before writing offers.
- Position yourself as a knowledgeable advisor by looping in a mortgage agent early.
For Clients:
- Don’t compare commercial rates to your personal home mortgage. That’s apples to oranges.
- Consider the net cash flow after financing costs, not just the rate.
- Lean on professionals—especially when venturing into 5+ units or holding company ownership.
A Story to Drive It Home
A pair of investors were ready to buy their first mid-size apartment building: a seven-unit walk-up in Hamilton. They were sharp, organized, and had been through a few residential deals before.
But when they got their rate quote—7.45% fixed for 5 years—they were floored. Their last triplex had been locked in at 5.29%. They hesitated.
I broke down the deal side by side, explained the commercial underwriting process, and showed them how the building’s cash flow still covered the higher rate comfortably. They ran the numbers again—and realized they were still winning.
They moved forward, structured the deal, and now they’re eyeing their next project with confidence—because now they understand what they’re playing with.
Allen’s Final Thoughts
Rates tell a story—and in the commercial world, that story is all about risk, revenue, and reliability. Yes, the rates are higher. But the opportunities? They’re bigger too.
If you treat your portfolio like a business, commercial lending becomes a powerful tool to scale. But it requires planning, patience, and a little professional backup.
How I Can Help
As a mortgage agent who works with both residential and commercial clients, here’s how I make your life easier:
- Shop rates from banks, credit unions, B-lenders, and private options
- Break down DSCR, NOI, and lender requirements in plain language
- Package your application so lenders actually say “yes”
- Coordinate appraisals, ESA reports, and legal professionals
- Educate your realtor partners with branded content, slide decks, and client-ready breakdowns
Whether you’re buying a duplex or a 12-unit apartment building, I help you get the financing that fits the strategy—not just the cheapest rate on paper.
Let me know if you’d like this content turned into a slide deck or an investor handout—happy to tailor it to your brand and message.
