Commercial vs. Residential Mortgages: What’s the Difference?

If you’ve ever looked into buying property, you’ve probably come across the terms “residential mortgage” and “commercial mortgage.” They sound similar—both are loans that help you buy real estate but are divided because both are designed for different situations.

Many clients we speak with aren’t sure which would nicely fit their needs. Let’s get some basic knowledge so you can differentiate clearly.

Residential mortgages are focused on homes.

A residential mortgage is the one most people are familiar with. It’s the property you get when buying a house to live in, whether that’s your first home, a vacation place, or even a small rental property.

Lenders mainly look at your job, income, credit history, and how much debt you already carry when approving this loan. Because of that, the process feels more secure and, in most cases, easier.

Here’s what usually stands out with residential mortgages:

• Down payments are smaller (often 5–20%).
• Loan terms are longer (15–30 years).
• Interest rates tend to be lower than commercial loans.

In summary, this type of mortgage is ideal for purchasing a permanent residence or seeking a short-term rental opportunity.

Commercial Mortgages: Built for Business

A commercial mortgage, on the other hand, is designed to generate income or support a business. That might be an office building, a retail store, a warehouse, or a multi-unit rental complex.

Here the lender isn’t just looking at you; they’re looking at the numbers. How much income will this property bring in? What’s the business plan? Is there a steady cash flow to cover the loan?

Because the stakes are higher, the terms are different:

• Down payments are larger (20–35%).
• Interest rates are higher.
• Loan terms are shorter (often 5–20 years).

This makes sense when you think about it. The risk is higher, but so is the potential reward.

Breaking It Down Side by Side

The simplest way to remember it is

• Residential properties are intended for personal use, such as your home or a small rental unit.
• Commercial is for business use (investment or income property).

Residential loans are about your financial situation. Commercial loans are about the business’s performance.

Which One Do You Need?

If you’re planning to move into the property for yourself or keep it small-scale, residential financing suits you best. But if you’re thinking about generating income, expanding your business, or investing in larger properties, commercial financing is the better path to choose.

It really comes down to your goals. That’s why having a mortgage advisor who understands both sides nicely is so important. The wrong choice can cost you time and money.

Final Word

Mortgages can feel complicated, but knowing the difference between commercial and residential loans makes it simple to choose. One is about helping families into homes, and the other is about helping businesses grow. Both are perfect in their places.

At Sandhu & Sran Mortgages, we work with clients every day who face this exact problem. Whether you’re a first-time buyer in B.C. or a business owner planning your next move, we’ll help you through the options and find what fits best.