Buying a multi-unit property—whether a duplex, four-plex, or a small apartment building—can be a powerful way to build wealth in Canada. But financing these investments requires more planning than a single-family home. With a multi-unit mortgage in Canada, you’re dealing with lenders, CMHC insurance, different loan structures, and rental income. In this guide, we’ll walk you through the essentials in real-life, easy-to-understand terms—covering down payments, interest rates, amortization, rental income, and key lender programs.
1. Understanding Multi-Unit Mortgages in Canada
A multi-unit mortgage is designed for properties with 2 to 5 or more rental units. Lenders view these differently because they offer greater rental income potential but also come with more risk.
Common property types include:
- Duplexes, triplexes, and four-plexes
- Small apartment buildings (5+ units)
- Mixed-use residential with some commercial (like office or retail space)
2. Down Payment & CMHC Insurance
Typical Down Payment
- Without insurance: 25–35% down payment
- With CMHC Multi-unit Loan Insurance (MLI): as low as 15%
CMHC MU MLI Benefits
- Allows for lower down payments (15–20%)
- Extends amortization up to 40–55 years, depending on the program
- Premiums depend on loan-to-value ratio
- MLI Select offers discounts for energy-efficient, accessible, or affordable projects
3. Interest Rates & Amortization
Rates
- CMHC-insured loans often come with lower interest rates (sometimes 1–1.5% below conventional loans)
- Owner-occupied multi-unit properties may qualify for better terms
Amortization Options
- Conventional mortgages: 20–30 years
- CMHC-insured mortgages: up to 40–55 years under MLI Select
4. Debt-Service Coverage & Cash Flow
Lenders focus heavily on rental income and expenses.
- DSCR (Debt-Service Coverage Ratio) must generally be above 1.0
- Rental income should cover mortgage, taxes, and maintenance
- Some investors accept slight negative cash flow if property appreciation offsets it (sometimes called negative gearing)
5. How to Apply: Step-by-Step
- Get pre-approved – speak with brokers or major lenders (RBC, TD, CIBC, First National, etc.)
- Gather documents – tax forms, rent rolls, lease agreements, Notice of Assessment
- Choose a lender – compare conventional vs. CMHC-insured options
- Estimate loan terms – down payment, amortization, interest rate, monthly payments
- Submit application – lender orders appraisal and reviews tenant history
- Close the deal – finalize documents and funding
6. Real-World Example
Sarah in Alberta buys a $1 million 5-plex:
- 15% down payment with a CMHC-insured loan
- 40-year amortization
- 4.0% interest rate
- Monthly mortgage: about $3,500
- Rental income: five units at $1,200 each = $6,000/month
This leaves room for taxes and maintenance while generating positive cash flow from day one.
7. Alternative Funding Options
- Commercial loans – available from banks like CIBC or Desjardins, financing up to 85% loan-to-value with long amortizations
- Bridge or short-term loans – ideal for fixer-uppers or repositioning deals
- Participation mortgages – lenders or partners share income in exchange for lower interest
8. Benefits & Risks
Benefits
- Ability to finance larger properties with lower down payments
- Diversified rental income stream
- Reduced vacancy risk compared to single-family rentals
Risks
- Stricter lender requirements and proof of income
- Complex property management needs
- Vacancy in multiple units can impact cash flow significantly
9. Tips for Success
- Work with lenders experienced in multi-unit financing
- Prepare complete documentation: leases, rent rolls, expense statements
- Use conservative income projections when modeling cash flow
- Keep a reserve fund for maintenance and vacancies
- Refinance when rents increase or property value appreciates
10. Next Steps
- Speak to a multi-unit mortgage specialist or broker
- Get pre-approved to know your budget
- Explore CMHC MLI Select if your property qualifies under affordability or sustainability programs
- Build detailed financial models before making offers
- Work with property managers and advisors to scale effectively
Conclusion
Financing a multi-unit mortgage in Canada takes more planning than a single-family home purchase, but it can deliver strong long-term returns. With CMHC options, down payments as low as 15%, extended amortizations, and competitive interest rates, investors have powerful tools at their disposal. By carefully modeling income and expenses, keeping documentation in order, and working with the right lenders, you can confidently build a profitable rental portfolio that grows steadily over time.
Source : fulinspace.com