When you apply for a Mortgage, lenders carefully analyse the details of your application before agreeing to proceed with financing. Many lenders determine how likely borrowers will be to repay a loan by making use of the so-called '5 Cs of Credit'...Character, Collateral, Capital, Credit and Capacity. Following is a brief outline of each.

CHARACTER - This is the general impression you make on the lender, a subjective opinion as to your trustworthiness and ability to repay the loan. Your background, professional experience, length at your current employer and current residence will all be considered.

COLLATERAL - In a real estate transaction the lender needs the assurance that, should the borrower be unable to repay the mortgage, the property that is mortgaged is marketable and can be resold. This is the reason lenders require an appraisal of the value of the property.

CAPITAL - This is your downpayment. From a lender's perspective, the higher the downpayment, the more likely it is that you will do all you can to keep up with the mortgage payments. Capital may also reflect your ability and willingness to save money and accumulate assets.

CREDIT - This is an estimation of how well you meet your credit obligations, as measured by a national credit agency. The credit agency takes information on payments on major credit cards, auto loans, leases, etc. for the last six years and produces a credit score.

CAPACITY - Based on your financial situation, how capable are you of repaying the mortgage? Lenders will review your income level and monthly financial obligations. Mortgage payments typically should be no more than 32% of your gross income although currently there are many new products available allowing purchasers to finance beyond that number. Make sure you understand all the issues resulting from 'no money down' and 'longer term' mortgages.

Most mortgages have the option to allow payments to be made on a weekly or bi-weekly basis. You may decide to chose one of these options for two reasons. The first is, it can save you money because you can pay off your mortgage about 4 years sooner. This can save you dramatically over the life of your mortgage. The other reason why these options are so popular is that if your employer pays you on a weekly or bi-weekly basis, you can simplify your budgeting by making the payment line up with the way you get paid.

Paying extra amounts on your mortgage can result in a big 'interest saving' over time. When we choose a mortgage company, 'privilege payments' options are something to look for. A 20% privilege payment will allow you to pay off up to $20,000 per year on a $100 000 mortgage. It is important that the privilege payment also be flexible to allow you to pay smaller payments on the mortgage and as often as you wish. An extra $1000 periodically paid on a mortgage can help you become mortgage free faster.

When you require a mortgage for more than 80% of the purchase price of a property, that mortgage must be insured by Canada Mortgage and Housing (CMHC) or GE Mortgage insurance. The premium charged by these companies decreases as the down payment increases. When you finance your property at 95%, a premium of 2.75% is added to the mortgage. By increasing the down payment to 10% of the purchase price the premium can be reduced to 2.5%. If you can put down 20%, you can avoid any additional insurance fee. Depending on your situation there are ways that you can structure this financing to avoid the CMHC or GE insurance premium.

As mentioned above, when you put a 20% down payment on your purchase you can avoid the CMHC premium. More importantly the larger the down payment, the lower the amount of interest you will pay over the life of your mortgage. It is important to note that it may not be wise to stretch yourself, in order to increase your down payment, by borrowing on credit cards or a line of credit, as you will be paying those off at a higher rate.

The options for mortgages available can be very confusing for most mortgage shoppers. Terms for mortgages vary between variable and fixed rate, 6-month terms to 10 year terms. Taking a variable or floating rate mortgage can have savings. Typically the shorter the term or guarantee of the rate, the lower the rate will be. This does not always happen, depending on the market place and the economy, but history has shown that short-term rates tend to be lower than long-term rates. The up side of a variable rate is the strong potential for interest rate savings. The down side is the fact that you are accepting the interest rate risk without a guarantee. If you are considering a variable rate mortgage you need to look at your own risk tolerance as well as your cash flow available to deal with potential increased payment. Considering projections of rates and where we see interest rates heading can also be important in this decision. Make sure you talk to an expert when you are making this decision.