Understanding Commercial Mortgage Rates: A Guide to the Lending Market in Canada


If you are exploring commercial property investments, understanding commercial mortgage rates is crucial. Throughout Canada, large banks, credit unions, and independent lenders offer commercial mortgages. You can also buy mortgages through a broker, giving you access to the most competitive terms and rates.

What Are Commercial Mortgage Rates and How Do They Fit into Unique Mortgage Products?

Interest rates significantly impact the cost of any mortgage. Rates can be variable, relying on changes in Bank of Canada rates and market conditions, or fixed, allowing you to take long-term advantage of the current low-interest-rate environment.

Mortgage lenders set their rates based on several factors, with the prime lending rate being one of the most important. This rate is set by Canada’s largest banks and serves as an indicator of the current state of the market. Currently, the prime rate is set at 3.9%, but borrowers typically receive rates higher than this figure.

Commercial Mortgages with Variable Rates

Variable rate commercial mortgages are products where the interest rate can change, depending on the movement of the prime rate and other factors. For instance, if you borrow at a rate of 8% on a variable rate mortgage, this rate could decrease if the prime rate drops, or increase if the economy shifts the other way.

Risks and Benefits of Variable Rates

  • Risks:
    • Fluctuating rates make financial planning difficult.
    • Higher rates increase the amortization period, prolonging debt.
  • Benefits:
    • Decreasing rates allow more of your payment to go towards the principal, potentially paying off your mortgage faster.
    • No need to refinance if interest rates decrease, avoiding new closing costs.

For more detailed insights into variable rates, you can visit Bank of Canada.

Commercial Mortgages with Fixed Rates

Fixed-rate mortgages offer a constant interest rate throughout the term, providing stability. Given today’s relatively low rates, fixed-rate mortgages are compelling.

Structure of Fixed-Rate Mortgages

Early payments on a fixed-rate mortgage primarily cover interest, with later payments contributing more to the principal. This means significant equity builds up later in the term. It’s crucial to compare offers and understand each lender’s amortization structure.

How Do Canada Mortgage Bonds Affect Fixed-Rate Mortgages?

Fixed-rate mortgages are based on Canada Mortgage Bond yields rather than the prime rate. Managed by the Canada Mortgage and Housing Corporation (CMHC), these bonds ensure stability in the mortgage market.

  • How It Works:
    • CMHC sells bonds to investors.
    • Funds from these bonds are used to purchase mortgages from lenders.
    • Lenders use these proceeds to offer new mortgages with a markup over the bond rate.

For more on CMHC and mortgage bonds, check out the CMHC website.

The Best Option for Your Commercial Mortgage

Deciding between variable and fixed rates depends on your financial situation and goals. Variable rates can be beneficial if they trend downwards, while fixed rates offer stability.

Professional advice is essential for making an informed decision. Our brokerage service can help you find the most competitive loans, whether fixed or variable rate. With extensive industry experience and a large network of lenders, we secure the best rates not usually available on the public market.

Contact us today for a consultation. Finding the right commercial mortgage is one of the most important financial decisions you will ever make. We ensure your decision is fully informed, with the very best mortgages available.

To book an appointment to discuss your needs and learn more about how Mortgage Capital Investment can help you, call 416-877-7438 today, or contact us.


Interest rate posted for selected products by the major chartered bank


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