Understanding how lenders assess risk is one of the most important steps in getting approved for a mortgage—especially with today’s stricter lending rules across Canada. The better you understand the criteria, the easier it becomes to position yourself for success.

See why lenders rely on the “5 C’s of Credit” — and how understanding them can dramatically improve your mortgage approval odds. 👇

The “5 C’s” are the backbone of mortgage underwriting. Lenders use them to evaluate creditworthiness, stability, repayment ability, and overall risk on every application. Higher risk means higher rates—but strong performance in these five areas can unlock better pricing, smoother approvals, and stronger negotiating power.

Here’s a breakdown of what each “C” really means and how it impacts your mortgage approval in today’s lending environment:

1️⃣ Collateral

Collateral refers to the property itself—its type, condition, location, and marketability.

✔️ Is it owner-occupied or a rental?

✔️ Is it a detached home, condo, cottage, or rural property?

✔️ Is the neighbourhood stable?

✔️ Does the property meet lender and insurer guidelines?

Lenders may also require an appraisal to confirm market value and ensure the home is adequate security for the loan.

2️⃣ Credit

Your credit profile shows lenders how reliably you repay debts. It includes:

✔️ payment history

✔️ credit score

✔️ balances vs. limits

✔️ collections or disputes

✔️ number of recent credit inquiries

Strong credit = lower risk = better rates.

Weak or inconsistent credit may require larger down payments or different lending programs.

3️⃣ Capacity

Capacity is your ability to repay the mortgage using provable income. Lenders compare your income against all monthly obligations using GDS/TDS ratios.

They review:

✔️ salary or hourly income

✔️ bonuses, commissions, or overtime (must be averaged over 2 years)

✔️ self-employment income (requires 2+ years of tax documentation)

✔️ other income such as support, pensions, or rental revenue

This is often the most important factor in determining approval.

4️⃣ Capital

Capital refers to your net worth and the size/source of your down payment.

✔️ Is the down payment saved, gifted, or from RRSPs?

✔️ Do you have additional assets?

✔️ Do you have closing cost reserves?

Minimum down payments in Canada:

- 5% for insured mortgages

- 20% for conventional (no mortgage insurance)

Lenders and insurers must verify where every dollar came from.

5️⃣ Character

Character reflects how responsible and stable you appear as a borrower. While subjective, lenders look at patterns such as:

✔️ length of employment

✔️ history of saving

✔️ stable housing history

✔️ responsible credit behaviour

✔️ financial discipline

This gives lenders confidence that you will maintain payments long-term.

💬 Final Thought

The “5 C’s” give lenders a complete picture of who you are as a borrower—and understanding them empowers you to improve your approval strength before applying. Strength in these areas helps secure better rates, smoother approvals, and more favourable terms.

If you’d like a personalized assessment of your mortgage readiness, send The Frontline Mortgage Group a message anytime.