How commercial mortgages work in BC
The questions British Columbia borrowers ask most, answered plainly, with a link to the page that goes deeper on each.
The short answer
A commercial mortgage is a loan on property that earns income or houses a business, and the lender sizes it mainly on what the building earns rather than on your personal income. Expect a larger down payment, a shorter term than the amortization, and a lender that tests coverage, leverage and the people behind the borrower.
How does a commercial mortgage work?
A commercial mortgage is a loan secured by property that earns income or houses a business. A residential mortgage is underwritten on you; a commercial mortgage is underwritten on the property, so the lender starts with the building's net operating income and tests whether it covers the payment. In Canada the line sits at five units: four and under is residential, five and up is commercial.
Can you get a mortgage on a commercial property?
Yes. Banks, credit unions, insurers, monoline lenders and private lenders all finance commercial property in British Columbia. A conventional file needs debt service coverage of 1.20 to 1.25, a down payment of 25 to 35 percent, net worth at least equal to the loan with liquidity around 10 percent of it, third party reports, and personal guarantees from the principals.
See commercial mortgage requirements in BC and how to value a commercial property.
Can I get a residential mortgage on a commercial property?
Generally not. Once a building crosses into commercial use or reaches five units, lenders underwrite it on its income rather than on your personal income. Buildings that combine homes with commercial space are a special case, because lenders split the underwriting between the residential and commercial parts.
How much deposit do you need for a commercial mortgage?
Plan on around 25 percent down on conventional multifamily, 25 to 35 percent on retail, office and industrial, and 40 to 50 percent on land. Insured multifamily can reach up to 95 percent leverage on a project scoring 100 points.
See commercial mortgage down payment by asset type.
How do you qualify for a commercial mortgage in BC?
The lender tests the property first and you second. The building's net operating income has to cover the annual payment by the lender's debt service coverage ratio, the loan has to fit within its loan to value limit, and the principals need the net worth, liquidity and credit to stand behind the guarantee.
See what lenders require, how DSCR sets your loan amount and the building condition assessment.
Are commercial mortgage rates higher than residential?
Usually, yes. Commercial pricing is built as a spread over a benchmark such as the Government of Canada bond yield or prime, and the spread reflects the asset, the leverage and the borrower. Insured multifamily is the main exception, because the insurance lets lenders price closer to the government curve.
See current benchmarks on commercial mortgage rates in BC.
How long is a commercial mortgage?
Two different clocks apply. The term is the length of the current contract, commonly 1 to 10 years, after which the balance is renewed, refinanced or repaid. The amortization is the period over which the loan would fully repay, commonly 15 to 30 years, and up to 50 years on some insured multifamily programs. Paying out before the term ends usually carries a prepayment charge.
How long does it take to get a commercial mortgage?
Conventional commercial financing commonly runs 45 to 90 days end to end, insured multifamily runs three to five months, and bridge or private financing funds in one to two weeks. A complete package on day one is what shortens it.
How do you calculate a commercial mortgage payment?
Use the standard amortization formula: payment equals loan times i, divided by 1 minus (1 + i) to the power of minus n, where i is the annual rate divided by 12 and n is the number of months. Lenders may compound differently and will quote their own figures.
Run it on the commercial mortgage calculator.
What does a commercial mortgage broker or agent do?
A commercial mortgage broker, which people also call a commercial mortgage agent, packages your file, takes it to the lenders writing your kind of deal and negotiates the terms. Brokers in British Columbia are licensed by BCFSA and must give you written disclosures about who they represent and how they are paid. Fees are agreed in writing before work begins, paid on funding, and disclosed to borrowers as BCFSA requires.
Read what BC's Mortgage Services Act changes for borrowers and why CCM.
Related reading
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