What Is the Difference Between Commercial and Residential Mortgages?

  • FAIRCHOICE Mortgage Co.

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Mortgages are loans used to purchase or refinance real estate property. While the basic concept of borrowing money to finance a property purchase is the same for both commercial and residential mortgages, there are several key differences between the two that potential borrowers should be aware of. So to understand the basics of commercial mortgages and how they differ from residential mortgages, Fairchoice Mortgage Co. has prepared a comprehensive guide for you.  


1. Purpose of the Property 
The primary difference between commercial and residential mortgages lies in the purpose of the property being purchased. Commercial mortgages are used to finance the purchase of properties used for commercial or business purposes, such as office buildings, retail spaces, or industrial properties. Residential mortgages, on the other hand, are used to finance the purchase of single-family homes, townhouses, and apartments.

2. Loan Amounts and Terms
Commercial mortgages tend to have higher loan amounts and longer terms compared to residential mortgages. This is because commercial properties are generally more expensive and generate more income than residential properties, which makes them a better investment for lenders. As a result, commercial mortgages often require more stringent qualifying criteria, such as higher credit scores and stronger financials. This helps to reduce the risk of default for the lender.

3. Down Payment Requirements
Down payment requirements for commercial mortgages are typically higher than those for residential mortgages. This is because commercial properties are considered to be a higher-risk investment compared to residential properties. In addition to the higher risk factor, down payment requirements for commercial mortgages also vary depending on the type of property and the lender. It’s important to keep in mind that while a higher down payment may mean a lower loan amount and lower monthly payments, it also means tying up more of your own capital into the investment. 

4. Qualifying Criteria
The qualifying criteria for commercial and residential mortgages can also differ. For commercial mortgages, lenders may consider factors such as the financial stability of the business that will be operating in the property, the income generated by the property, and the borrower’s credit history. Commercial lenders may also consider the debt service coverage ratio (DSCR), which is a measure of the property’s ability to generate enough income to cover its mortgage payments and operating expenses. 

5. Interest Rates
The interest rates for commercial mortgages can be higher compared to residential mortgages, due to the higher risk associated with financing commercial properties. However, the exact interest rate a borrower will receive will depend on several factors, including the lender, the loan amount, and the borrower’s credit history. Interest rates for commercial mortgages can also vary based on the type of property and its intended use. For example, properties that are considered to be lower risk, such as those with long-term leases or established tenants, may be eligible for lower interest rates.


If you’re looking for a mortgage broker in ON, consider reaching out to, Fairchoice Mortgage Co. We bring clarity to our client's lives with a bevy of financial solutions. We strive to provide a paradigm shift in the level of service we offer to clients through our knowledge of credit and taxes in addition to just mortgages. We have helped over 6 thousand clients realize their goals and we’re just getting warmed up! Serving clients across North York, Scarborough, Etobicoke, Toronto, Vaughan, Markham, Richmond Hill, Pickering, Ajax, Aurora, and the surrounding areas.

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