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The Five Cs of Credit — Character, Capacity, Capital, Collateral, and Conditions — is the framework underwriters use to evaluate a mortgage application beyond a single ratio or score.
Character is the borrower’s credit history and track record of repaying debt, reflected in their credit score and credit report. Capacity is their ability to carry the payments, measured through GDS and TDS against their qualifying income. Capital is the borrower’s own money in the deal — savings, investments, and the down payment itself.
Collateral is the property being financed, assessed through its loan-to-value ratio and appraisal; stronger collateral can offset some weakness elsewhere in the file. Conditions covers the broader context — the terms of the specific loan, and the economic environment it’s being underwritten in, such as the wave of mortgages coming up for renewal. Underwriters weigh all five together rather than approving or declining on any single factor alone.
Character: assessed through the credit report and credit score, which in Canada (Equifax) generally range from 300 to 900.
Capacity: tested through GDS and TDS calculated at the minimum qualifying rate, not the contract rate.
Capital and Collateral: capital is the down payment and other funds the borrower brings; collateral is the property itself, evaluated through LTV and appraisal.
Conditions: includes loan-specific terms and the broader lending environment — relevant context given that roughly 60% of all outstanding Canadian mortgages are set to renew by the end of 2026.
Definitions reflect Canadian federal and provincial rules as of the “Updated” date above. Not advice for any specific file.
Every term a Canadian mortgage professional needs — defined, sourced, and kept current.
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