How Commercial Mortgages Function in Canada

In Canada, commercial mortgages are very popular among investors, which can be a shock to a lot of people, as this type of mortgage tends to have higher interest rates than residential mortgages. There is a clear explanation for this. Commercial tenancies last a longer period than residential options. Not only that, they are easier to handle. Residential leases tend to be signed annually, whereas commercial leases can go up to 10 years.

“Commercial mortgages may be the riskiest loan to take out, but it can wreak the best benefits” -Jared Bartos mortgage expert in Vancouver.

Commercial Mortgage Options

In Canada, a small commercial mortgages typically ranges between half a million to $2 million. When it comes to this type of mortgage, one of the key elements that play a role in obtaining it is the amount of income that is generated by the property, as well as one’s ability to pay back.

When the commercial loan is meaningful in amount, it comes accompanied by a lower interest rate than if it were to be a small mortgage, especially if the property is situated in a commercial area that is highly desired. Large loans tend to be made to owners of plazas, shopping malls, vacant lots, industrial land, and high-rise apartment buildings. Commercial mortgages can take weeks or several months to finalize, as environmental reports are required, and numerous conditions must be met. This process can be much quicker if there is a private lender involved, but rates tend to be higher.

The Process of Commercial Mortgage

It has been noted that having the aid of a professional mortgage broker can be extremely valuable when preparing to apply for a commercial mortgage. A licensed brokerage firm, would be more than happy to work with you in getting all your legal work in order. This type of firm can explain everything, from A to Z. To speed up the application, a licensed brokerage firm can present your income and financial statement to potential lenders.

A good broker can save you a meaningful amount of money on your interest rate. It’s important to mention that a broker doesn’t earn a commission for this type of loan, and thus, he or she will charge the borrower for services.

If you don’t have experience in handling a commercial property, you should hire somebody who does, because lenders like to be certain that the property is going to be taken care of and will operate smoothly. Mortgages that are insured by the Canada Mortgage and Housing Corporation (CMHC) have a low-interest rate when there is sufficient income to support the loan. Even so, it is important that you know that demand and supply also plays an important role in the rate.

Investors in Real Estate

If the property is being categorized as an investment, an investor should know that residential real estate might be financed with commercial mortgages. The amount of money that you will be able to borrow will depend on the property.

Most lenders expect a down payment that consists of at least 35%. They tend to look at the current status of the business, as well as one’s credit history. For those businesses that are operating, lenders expect them to be profitable and steady. If you are not operating a business, business plan and financial projections will be requested. If it’s just for commercial use, CMHC won’t place insurance on the property but may ensure a venture that is of mixed nature (commercial and residential).