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Mortgage Basics: Every Canadian Homebuyer Should Know

FAQs

September 15, 2025 (2 mins read)

Updated: July 2025

You must have heard phrases like "underwriting" and "the 4 C's of credit" if you're looking for a mortgage in Canada. We're answering the most frequently asked (and searched) questions Canadians have regarding mortgages in 2025.

What are the 4 C’s of Credit Mortgage?

Lenders utilize the 4 C's of credit to determine if you're eligible for a mortgage. They examine the following:

Character: Your credit history and reputation as a borrower
Capacity: Your ability to repay (income vs debt)
Capital: Your savings or investments
Collateral: The property you're buying (used as collateral)

Before approving your loan, lenders use these four elements to determine the risk.

*In Canada, lenders often also consider employment history and housing stability under “Character.”

What are the Four Pillars of Credit?

This one is more about the breakdown of your credit score. Here are the four main pillars that impact your credit score:

Payment history: Do you make timely payments?

Credit utilization: How much of your available credit do you use?

Length of credit history: For how long have your accounts been active?

Credit types: include a variety of credit cards, loans, credit lines, and more.

*Tip: The best way to raise your credit score in Canada is to keep your credit utilization below 35% of your limit.

What Is Underwriting in a Loan?

Underwriting is the process by which the lender thoroughly examines your financial situation. They determine whether you qualify for the mortgage you are looking for.

They’ll look into:

Income and employment

Credit report

Debt ratios

The property’s value (based on appraisal)

Before the mortgage is funded, consider underwriting to be the "last approval stage." Underwriting in Canada typically takes a few days to weeks; missing paperwork may cause delays.

What Is Prequalified?

Prequalification is giving a lender your basic information, such as your income, debts, and credit score, so they can estimate how much you might be able to borrow.

It is:

Quick, it might not take a day.

Non-binding (not a promise of acceptance)

An excellent place to start looking for a home

In Canada, pre-approval, which involves credit checks and document verification, is more robust than prequalification.

Who Pays for Collateral?

The house you buy serves as security for a mortgage. What about the associated costs?

As the buyer, you are covered by the following:

Appraisal cost (often between $300 and $500 in Canada)
Home inspection (about $400–$600; recommended)
Land transfer taxes and legal fees

*To secure the loan, lenders utilize collateral. They have the right to take back and sell the house if you don't pay. Advice: If you select a featured mortgage program, many lenders will pay for the evaluation.

About the Author

Written by the Rateswise Team

The Rateswise Team is a collective of mortgage experts, financial writers, and market analysts dedicated to making the homeownership journey clearer for Canadians. We specialize in breaking down complex topics—from underwriting and credit scores to the nuances of different mortgage products. Our content is thoroughly researched and written to empower you with the knowledge needed to navigate the mortgage landscape with confidence.