Commercial Mortgage Rates and DSCR in Canada, Explained (2026)
Commercial mortgage rates are priced to the deal, and DSCR is the number that decides them. Here's how commercial rates, debt-service coverage, and CMHC MLI Select work in Canada.
Commercial mortgage rates are priced to the deal, and DSCR is the number that decides them. Here's how commercial rates, debt-service coverage, and CMHC MLI Select work in Canada.
If you're financing a plaza, an apartment building, an industrial bay, or a mixed-use property in 2026, the first thing you'll notice is that nobody quotes you a single posted rate the way a bank does for a home. Commercial mortgage rates are built deal by deal, and the engine that drives them is the debt-service coverage ratio — DSCR. Understand DSCR and you understand most of how your rate and approval get decided. Here's the full picture.
The short answer
A commercial mortgage is underwritten primarily on the property's income, not just your personal finances. The lender's central test is the debt-service coverage ratio (DSCR) — net operating income divided by annual debt payments — and most want at least 1.20 to 1.25. Your rate is then priced to the deal's risk: property type, DSCR, loan-to-value, tenant quality, and your strength as the sponsor. Multi-family buildings can access CMHC MLI Select for better rates and higher leverage. See commercial mortgage options or model a deal with the commercial mortgage calculator.
How commercial mortgages differ from residential
A home loan is underwritten on you — your income, your credit, your ratios. A commercial mortgage is underwritten on the property's ability to pay for itself, with your finances as supporting evidence. That single shift changes almost every term of the deal.
| Feature | Residential | Commercial |
|---|---|---|
| Underwriting basis | Borrower income & credit | Property cash flow (DSCR) |
| Down payment / LTV | As little as 5%; up to 95% LTV | Commonly 25–35% down; 65–75% LTV |
| Amortization | Up to 25–30 years | Often 20–25 years (longer for strong multi-family) |
| Term | 1–5 years typical | Frequently 1–5 years, sometimes longer |
| Rate | Largely standardized | Priced to the individual deal's risk |
| Recourse | Full recourse | May be full or partial recourse; personal guarantees common |
| Documentation | Moderate | Heavy — leases, financials, appraisal, environmental |
Recourse matters more than borrowers expect
On most Canadian commercial deals, expect to sign a personal guarantee, meaning you're on the hook beyond the property itself. Larger, lower-leverage, institutional-quality deals can sometimes be negotiated as partial- or limited-recourse, but full recourse is the norm for small and mid-market borrowers. Less recourse generally means more equity required and a higher rate.
What actually drives the rate
Because there's no posted commercial rate, the price is assembled from the risk factors below. Improving any one of them can move your rate.
- Property type. Multi-family and well-leased industrial are viewed as lower risk and tend to price best; special-purpose assets (hotels, gas stations, self-storage) price higher.
- DSCR. The higher your coverage above the minimum, the more cushion the lender sees — and the better your pricing and leverage.
- Loan-to-value (LTV). More equity (lower LTV) means less lender risk and a sharper rate.
- Tenant quality and leases. Long leases to strong, creditworthy tenants stabilize income; short leases or rollover risk push the rate up.
- Sponsor strength. Your net worth, liquidity, and track record with similar assets all factor in — lenders lend to people, not just buildings.
- Location and condition. Primary markets and well-maintained buildings price better than secondary markets or deferred-maintenance assets.
Rates are typically structured off a benchmark (a government bond yield for fixed terms, or the lender's prime for floating facilities) plus a spread that reflects all of the above. We don't quote a current number here because commercial pricing changes with the bond market and is genuinely deal-specific — but the levers are stable, and you can pull them.
DSCR, defined — with the formula
The debt-service coverage ratio measures whether the property earns enough to comfortably cover its mortgage. It is the single most important number in commercial underwriting.
DSCR = Net Operating Income (NOI) ÷ Annual Debt Service
Net operating income is the property's gross rental income minus operating expenses (property taxes, insurance, management, utilities, maintenance, vacancy allowance) — but before the mortgage payment. Annual debt service is the total of your principal-and-interest payments over a year. A DSCR of 1.00 means the property exactly breaks even on debt; lenders want a margin above that, typically 1.20 to 1.25 or higher.
What different DSCR levels signal
| DSCR | Meaning | Lender view |
|---|---|---|
| Below 1.00 | Income doesn't cover the mortgage | Decline, or requires more equity |
| 1.00–1.19 | Thin or no cushion | Tight; may cap leverage or raise rate |
| 1.20–1.25 | Standard minimum cushion | Generally bankable |
| 1.30+ | Strong coverage | Best pricing and leverage |
Worked example: sizing a loan with DSCR
Imagine a small multi-tenant retail plaza generating $300,000 in gross annual rent, with $108,000 in operating expenses. The NOI is $192,000. Suppose the proposed mortgage has annual debt service (principal plus interest) of $150,000.
| Line | Amount |
|---|---|
| Gross rental income | $300,000 |
| Less: operating expenses | ($108,000) |
| Net operating income (NOI) | $192,000 |
| Annual debt service | $150,000 |
| DSCR ($192,000 ÷ $150,000) | 1.28 |
At 1.28, this deal clears a typical 1.20–1.25 minimum comfortably, so the lender is likely to approve it and may even offer better pricing for the extra cushion. If the lender required exactly 1.25, the maximum annual debt service they'd allow would be $192,000 ÷ 1.25 = $153,600 — which then caps the loan amount once you apply the going rate and amortization. In other words, DSCR doesn't just decide approval; it sets the ceiling on how much you can borrow.
CMHC MLI Select for multi-family
If you're financing purpose-built rental housing of five or more units, CMHC's MLI Select program can dramatically improve your terms. Because the mortgage is insured, lenders take less risk, which translates into lower rates, longer amortizations, and higher leverage than conventional commercial financing.
MLI Select awards points across three outcomes — affordability, energy efficiency, and accessibility. The more points your project earns, the richer the benefits: leverage can reach well above conventional limits, and amortizations can extend significantly longer than the 20–25 years typical of conventional commercial deals. For investors building or holding rental housing, structuring a project to hit a higher MLI Select tier is often the single biggest lever on the economics of the deal. We help model whether a property can qualify and at what tier. See multi-unit financing for more on how these deals are structured.
Fees and timelines
Commercial deals carry more third-party costs and take longer than residential closings — budget for both. Typical costs and steps include:
- Application / commitment fees. Many lenders charge an upfront fee, often a percentage of the loan, sometimes partly refundable.
- Appraisal. A commercial appraisal is more involved and costlier than a residential one.
- Environmental assessment. A Phase I (and sometimes Phase II) is required for many property types, especially industrial and gas stations.
- Legal and due diligence. Commercial legal work, lease review, and a building condition assessment.
- Broker / placement fees. Disclosed up front, common on commercial deals given the structuring work involved.
On timing, a straightforward conventional commercial deal commonly takes 30 to 60 days, while CMHC-insured multi-family can run longer because of the insurer's review. Preparing a clean package — a year or two of income and expense statements (or a credible pro forma), a current rent roll and leases, your personal financial statements and net worth, and a clear business plan for owner-occupied or value-add deals — is the best way to compress the timeline.
Frequently asked questions
What is a good DSCR for a commercial mortgage in Canada?
Most lenders want at least 1.20 to 1.25, meaning the property earns 20–25% more than its mortgage payments. A DSCR of 1.30 or higher generally earns the best pricing and the most leverage.
How is DSCR calculated?
DSCR is net operating income (NOI) divided by annual debt service. NOI is gross rental income minus operating expenses, before the mortgage payment; annual debt service is your yearly principal-and-interest total.
Are commercial mortgage rates higher than residential rates?
Usually somewhat higher, because they're priced to the individual deal's risk rather than standardized. Strong DSCR, low LTV, quality tenants, and a strong sponsor all bring the rate down.
How much down payment do I need for a commercial property?
Commonly 25–35% (65–75% LTV) for conventional deals. CMHC MLI Select can allow higher leverage for qualifying purpose-built rental housing.
What is CMHC MLI Select?
A CMHC insurance program for multi-family rental properties of five or more units. It awards points for affordability, energy efficiency, and accessibility, unlocking lower rates, longer amortizations, and higher leverage.
How long does a commercial mortgage take to close?
Often 30 to 60 days for a conventional deal, and longer for CMHC-insured multi-family due to the insurer's review. A complete, well-organized package speeds things up considerably.
Financing a commercial or multi-family property? Ask Maya to walk through DSCR and your options, then talk to an advisor who can package the income story lenders want. Looking at a business purchase instead? Explore business loans.
Mortgage content produced by Mortgage Squad Advisors' team of FSRA-licensed mortgage advisors and reviewed under the supervision of the brokerage's Principal Broker (FSRA Brokerage #13737) before publication.
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