Mortgage Corner: Collateral helps lender to see big picture

Web Lead

Dean Bala is a mortgage broker and Realtor working out of the Creston Valley Realty office.

For this month, we will be continuing to take a look at the five Cs of credit. To refresh your memories, the five Cs include credit, capacity (ability to make the payments), capital (down payment), character (length of employment, savings history and other factors that supplement credit history) and collateral (assets owned in addition to down payment). In previous columns, we took a look at credit, capacity, capital and character.

The final one we will look at is collateral. Collateral is basically looking at a person’s net worth. It is seeing what kind of assets a person has acquired, and determining whether that helps or hurts the application. As discussed in the last column in this series, some of these can get a little subjective. Things like your credit score, down payment amount, debt service ratios and others are all objective, measurable requirements. When we talk about collateral, there often isn’t a set criterion that the lender will look for. It is more a way for the lender to look at the big picture to see if everything fits together and to get a better sense of who they are lending money to. It generally isn’t the basis that an approval or decline is made on, but it can be the deciding factor when everything else is borderline.

One example would be a young couple buying their first home. Maybe they have just finished university, have zero net worth and are using a gifted down payment from a parent. While this may not seem like the strongest application, the lender will often read between the lines. The fact that they have just finished a university education with no debt might prove their character enough for a lender’s comfort. A contrasting example might be someone who has been in a decent paying job for quite some time that is using a gifted down payment. The lender might question their financial management skills considering they have been making good money and not saving any of it. Again, the credit and debt service ratios would be the foundation of their decision, but collateral can tip the scales when things are close.

Well that sums up our review of the five Cs of credit. Now we have looked at credit, capacity, capital, character and collateral. While this stuff can be a little dry, I hope it has helped to clarify what lenders are looking for when issuing credit, and why they ask for certain things. If you have any specific questions, feel free to call or email any time.

Dean Bala is a mortgage broker and Realtor working out of the Creston Valley Realty office. For more information, he can be reached at 250 402-3903 or dean_bala@yahoo.com.

Just Posted

Everyone is entitled to their opinion

I do not appreciate having someone’s opinion shoved in my face.

Let there be peace

Let us show respect and love

Holiday season means more impaired drivers are on the road

It was another slow week for Creston RCMP members, who responded to… Continue reading

Committee for an Affordable Fire Hall ready to get to work

The public will be invited to submit their written ideas for “the top ten ways to get an affordable fire hall.”

Testimony wraps up in Blackmore charter challenge

After evidence from RCMP officers, crown and defence lawyers move to closing arguments.

VIDEO: Average Canadian food bill to rise by $348 in 2018

Atlantic Canada and B.C. will see the most increases for consumers

Debt-to-household-income ratio rises in third quarter

Total household credit market debt grew to $2.11 trillion in the third quarter

B.C. Mountie told to resign after texting teenage sex assault victim

RCMP documents say Const. Brian Eden sent sexually inappropriate photos to 17-year-old girl

Family doctors should learn to treat addiction, not shun patients: scientist

B.C. Centre on Substance Use’s Dr. Evan Wood said efforts underway to change addiction medicine image

Four dog deaths investigated in Cranbrook

One vet suggests a parallel to these deaths and similar ones in 2016

Meningococcal disease outbreak declared in Okanagan

Five cases in last six months among 15- to 19-year-olds, including one in Vernon

Province rejects Ajax mine in Kamloops

KGHM Ajax had proposed a 1,700-hectare open-pit copper and gold mine, just southwest of Kamloops

Border officers rally at B.C.’s Peace Arch

CBSA employees tire of ‘lack of respect’

FCC votes along party lines to end ‘net neutrality’

Move rolls back restrictions that keep big providers from blocking services they don’t like

Most Read