Back to Blog

The 5 C’s of Mortgage Lending

General Nazarina DiSpirito 10 Jun

Buying a property and securing a mortgage can be daunting tasks, especially in today’s hot Vancouver market.  When you apply for a mortgage, lenders will assess your credit risk based on a number of credit factors, known as the “5 C’s” of credit:

  • Collateral. This is the property you are hoping to purchase.  If there are issues with the property, such as former grow-ops, older wiring systems, size, presence of asbestos, presence of an oil tank, water repair issues, etc., that could have an effect on whether you are approved for a mortgage, and at which rate.   

  • Capital. One of the first questions lenders will ask is how are you coming up with the down payment.  Assets, such as savings and investments may be considered.  RRSPs can also be used, up to $25,000 per person if you have not owned a residence in the last 5 years.  Lenders also like to see that you have a rainy day fund to fall back on if something changes with your expenses or job situation. 

  • Credit History. What is your history of repayment?  Lenders will examine your established record of managing credit and making payments over time in determining whether to lend to you and at what rate.

  • Capacity. Are you able to pay for your mortgage?  Lenders will look at your income and employment history to determine your ability to repay your new mortgage and outstanding debt.  Lenders will want to see proof of income, which will vary depending on whether you are salaried, self-employed, or paid hourly.  You can expect to provide a job letter and a paystub as a minimum.  Previous years’ income tax returns and Notice of Assessments may also be required.

  • Character used to be an important factor, but is now the least important factor for lenders in today’s market.

While the 5 Cs give a basic understanding to factors determining whether a lender will grant you a mortgage and at what rate, securing the best mortgage requires extensive knowledge of what each lender is looking for in a mortgage applicant.  Each lender has different ways to evaluate potential customers, and a good mortgage broker will know exactly what lenders are expecting in order to give you the best mortgage package possible.