Comparison
Commercial vs Residential Property Loans
Residential and commercial property loans look superficially similar — they are not the same product. Different LVR caps, different valuation methodology, different documentation, different terms, different exit assumptions. Here is what actually changes when the contract moves from residential to commercial paper.
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Why the distinction matters before you sign a contract
Residential brokers routinely quote commercial deals using residential assumptions — 80% LVR, 30-year P&I, two-week settlement. Commercial reality is 65–70% LVR, 15–25 year amortisation, and six-week settlement on a bank deal. A borrower who has committed to a 10% deposit on a $2m childcare centre on a residential frame of reference is short $400k on day one. Get the structure right before the contract is signed, not after.
What makes a loan 'commercial' to a lender
Security type and use, not borrower type. Any property zoned commercial, industrial, mixed-use or specialised (childcare, service station, accommodation, medical) is commercial regardless of who owns it. A residential dwelling rented to a related-party trust is still residential. Mixed-use (commercial ground floor, residential upstairs) is reviewed line by line — most lenders run it as commercial above 40% commercial floor area by value.
Commercial Loan vs Residential Mortgage
Side-by-side on the metrics commercial credit committees actually weigh.
| Attribute | Income-producing assetCommercial Loan | Owner-occupier or rental dwellingResidential Mortgage |
|---|---|---|
| Max LVR (standard) | 65–75% | 80–95% |
| Headline rate (full doc) | From ~6.5% p.a. | From ~5.7% p.a. |
| Loan term | 15–25 years (some to 30) | Up to 30 years standard |
| Amortisation | Often interest-only 3–5 years, then P&I | P&I or IO 1–5 years |
| Valuation cost | $1,500–$5,000 (borrower-paid) | $0–$500 (often lender-absorbed) |
| Valuation methodology | Capitalisation of net income + DCF + comparable sales | Comparable sales |
| LMI | Not applicable — borrower contributes 25–35% equity | Applies above 80% LVR |
| GST on purchase price | Often applies (going concern or margin scheme) | Not applicable |
| Annual review | Common — financials, ATO, BAS | Not standard |
| Personal guarantee | Always required up to $5m | Standard for company / trust borrowers |
| Settlement timeline | 3–8 weeks | 2–4 weeks |
When you are unambiguously on the commercial lane
The property is zoned commercial, industrial, or specialised. The property is owned by a trust, company or SMSF for investment or business use. The acquisition involves GST (going concern or margin scheme). The borrower is the operating business and the property is the premises. Any of these and the conversation moves to commercial — residential lenders will decline regardless of the borrower's personal balance sheet.
When residential is the right product (and you should not over-engineer)
Owner-occupied residential dwelling. Standard investment residential held in personal or family-trust name. Residential development of one to three dwellings on a residential title. These deals belong on residential paper — commercial pricing, LVR and amortisation are materially worse for the same outcome, and the documentation burden is unnecessary.
Lender appetite right now
Commercial property finance is provided by roughly 35 active lenders in Australia (banks and non-banks combined with cheque size > $1m). Residential is provided by 100+. The commercial market is more concentrated, more relationship-driven, and rewards a borrower who arrives with the right structure pre-built. Residential is more commoditised and more rate-driven. The two markets do not transfer experience cleanly in either direction.
Commercial Loan vs Residential Mortgage — FAQ
The questions sophisticated commercial borrowers ask when choosing between these two structures.