Why a Credit Check Is Essential for the Mortgage Process (And Why You Shouldn't Worry)

Tim Lyon • February 15, 2024

I get it. The idea of someone checking your credit can feel uncomfortable. Maybe you're worried about the impact on your score, or you're unsure what I'll find. Many clients feel this way before their first credit check.


Here's the truth: a credit check is one of the most valuable steps in any mortgage process. It protects you by revealing potential issues early, ensures I'm working with accurate information, and has minimal long-term impact on your credit score. Let me break down exactly why this matters and what you can expect.


Why Credit Checks Are Non-Negotiable

When I work on your mortgage, I need to see what lenders will see. This isn't about judgment. It's about accuracy and catching problems before they affect your approval or rate.


The consumer credit reports you can access for free (from Equifax, Credit Karma, Borrowell, and others) often show different scores than what lenders and I use. The difference varies by client and bureau, but it can be significant. If you think your score is 720 based on a consumer report, but lenders see 680, that's a problem we need to address upfront.


More importantly, some issues don't appear on consumer reports at all. I've had clients with old phone bills or closed credit cards showing missed payments on their lender report that weren't visible on their consumer report. These surprises can drag down your score and affect your mortgage options.


What Happens During a Credit Check

When I run your credit for a mortgage pre-approval, it's called a hard inquiry. Yes, this type of check does appear on your credit report and can have a small impact on your score.

Here's what you need to know:

  • The impact is minimal. Your score may dip slightly, but how much depends on your overall credit profile.
  • Recovery is quick. The effect diminishes over time, typically within a few weeks or months depending on your borrower profile.
  • Multiple mortgage checks count as one. If I check your credit and then a lender checks it during your application, those inquiries are grouped together as a single check. This applies as long as all checks happen within 45 days for Equifax or 2 weeks for TransUnion.
  • People with perfect credit have bureau checks too. I've seen clients with scores in the high 800s who have multiple inquiries listed. Credit checks are a normal part of financial life.


The Hidden Benefit: Catching Issues Early

This is where the credit check becomes invaluable. When I review your report, I'm looking for red flags that could hurt your approval or cost you a better rate:

  • Old accounts you forgot about with late payments dragging your score down
  • Errors or inaccuracies that need to be corrected
  • High credit utilization that's easy to fix
  • Signs of fraud or identity theft


If we find an issue, we have time to deal with it. Resolving problems with vendors or credit bureaus can take anywhere from days to weeks. Discovering these issues early gives us a buffer to fix them before we need to submit your application.


If we wait until you need urgent financing or you're up against a deadline, we may not have time to correct these issues. That could mean accepting a higher rate, having fewer lender options, or dealing with unnecessary stress.


Understanding Your Credit Score

Your credit score ranges from 300 to 900 and helps lenders evaluate how likely you are to repay your debts on time.

Here's how scores are generally viewed:

  • 760 and up: Excellent
  • 725 to 759: Very Good
  • 660 to 724: Good
  • 560 to 659: Fair
  • 300 to 559: Poor


Your score is calculated based on several factors:
  • Payment History (Most Important): Your repayment behavior, number and types of accounts, and whether you pay on time.
  • Credit Utilization: How much of your available credit you're using. Keeping your credit cards and lines of credit under 30% of their limits is ideal.
  • Length of Credit History: How long you've had your credit accounts. Longer is better, as long as accounts are in good standing.
  • Types of Credit: The variety of credit you manage responsibly (credit cards, lines of credit, car loans, student loans, mortgages).
  • Inquiries: How often your credit file is accessed. Multiple inquiries can signal financial stress, but mortgage-related inquiries within a short timeframe are grouped together.


Not all credit checks impact your score. Soft checks, including when you check your own score, are not counted against you.


Real-World Examples: Errors That Could Have Derailed Approvals

I've seen countless credit report errors over the years. Here are a few scenarios where catching these issues early made all the difference:


The Phone Bill in the Wrong Name

A client came to me with a credit score well below the acceptable threshold for approval. When I reviewed their report, I found a phone bill account with numerous missed payments dragging down their score.


They contacted the phone company and discovered the account didn't even belong to them. The provider had another customer with the same name and had been reporting to the wrong credit bureau. We got the issue resolved and the account removed from my client's report. Without catching this early, they wouldn't have been able to get approved.


The $4 Charge on a Closed Account

Another client closed a credit card in 2019 after paying off the full balance. What she didn't know was that a $4 charge was billed the month after she closed the account for some residual fee. Since the account was closed, she never saw the bill.


That $4 charge sat there reporting as a missed payment month over month, dramatically impacting her credit score. She was able to sort it out with the bank and provide proof to the credit bureau, who updated her profile accordingly.


I've seen multiple variations of these scenarios: accounts registered to the wrong name, old accounts that should have closed but didn't, charges appearing after closure. These errors happen more often than you'd think.


The Broker Advantage

Here's something most people don't know: as a mortgage broker, I have a special line to Equifax that allows me to get disputes resolved in days compared to the consumer process, which can take weeks to months. When we find an error, I can help expedite the resolution so it doesn't hold up your mortgage approval or cost you a better rate.


If my clients in these examples had waited until they were further into the mortgage process to run their credit, we wouldn't have had time to fix these issues. They could have been forced to accept higher interest rates, had fewer lender options, or been unable to buy the home they wanted.


Quick Summary

  • A credit check protects you by revealing what lenders will see and catching issues early, whether you're buying, refinancing, or renewing.
  • Consumer credit reports often show different scores than lender reports, and some issues don't appear on consumer reports at all.
  • Common errors include accounts in the wrong name, charges on closed accounts, and old accounts that should have been removed.
  • As a mortgage broker, I have a special line to Equifax that can resolve disputes in days instead of weeks to months.
  • The impact of a hard inquiry is minimal and recovers quickly (days to weeks depending on your profile).
  • Multiple mortgage-related credit checks within 45 days (Equifax) or 2 weeks (TransUnion) count as one inquiry.
  • Even clients with perfect credit scores have bureau checks listed on their reports.


Next Steps

Whether you're exploring mortgage options or have questions about your credit, don't let concern about a credit check hold you back. The information we gain is worth far more than any temporary, minor impact on your score.


Need help with your mortgage or have questions about your credit? Book a consultation or call 778-988-8409.


Glossary

Credit Bureau: An organization that collects and maintains credit information about consumers. In Canada, the two primary credit bureaus are Equifax and TransUnion.


Credit Utilization: The percentage of your available credit that you're currently using. For example, if you have a credit card with a $10,000 limit and a balance of $3,000, your utilization is 30%.


Hard Inquiry: A credit check that occurs when you apply for credit (like a mortgage), which appears on your credit report and may have a small, temporary impact on your score.


Lender Report: The credit report that mortgage lenders and brokers access, which may contain different information or scoring than consumer reports.


Soft Inquiry: A credit check that doesn't impact your score, such as when you check your own credit or when companies check your credit for pre-approval offers.


Trade Line: An account listed on your credit report, such as a credit card, line of credit, car loan, or mortgage.

Tim Lyon

Mortgage Consultant

Mortgage Renewal vs. Refinance: Understanding the Key Differences

By Tim Lyon • November 25, 2025
If you own a property with a mortgage, you've probably heard the terms "renewal" and "refinance" thrown around. While both involve obtaining a new term for your mortgage, there are some important differences to understand. Let's break down what each one means and when you might use them. Understanding Mortgage Basics In Canada, when you take out a mortgage, the payments are typically spread over 25 to 30 years. This period is known as the amortization. However, unlike in the U.S., Canadians do not keep the same interest rate and payment terms for the entire amortization period. Instead, you have an initial term, usually 3 to 5 years, after which you need to renew into a new term. For example, if you have a 25-year mortgage with 5-year terms, you will need to renew your mortgage four times throughout its lifespan. It's also common to have a mix of different term lengths over the course of your mortgage. What is a Mortgage Renewal? A mortgage renewal occurs at the end of your mortgage term. When you renew, you start a new term with a new interest rate while keeping the remaining details of your mortgage the same. The key element here is that the mortgage charge registered on your property's title remains unchanged. A renewal is straightforward and typically does not involve any significant changes to your mortgage agreement other than a new interest rate. Think of it as hitting the "continue" button on your mortgage, but at new rates. What is a Mortgage Refinance? A mortgage refinance is different. When you refinance, you are making changes to your original mortgage agreement. This means paying off your existing mortgage and registering a new one on your property's title. Essentially, you are taking out a completely new mortgage for the same property. People commonly refinance to: Access the equity in their home for investments or major purchases Consolidate high-interest debt into their lower-rate mortgage Extend the amortization period to reduce monthly payments and improve cash flow Make significant changes to their mortgage structure It's important to note that refinancing is not allowed for insured properties (those with less than a 20% down payment at purchase). This means the maximum loan amount in a refinance is 80% of your property value. What About Switching Lenders? If you want to keep everything the same but switch lenders for a better rate, this is known as a transfer. A transfer is a type of renewal where the original mortgage charge is transferred from one lender to another. Depending on the lenders involved, you might be able to make minor changes (like extending the amortization or changing borrowers) without needing a full refinance. Why Timing Matters Your mortgage maturity date is when your current term ends. This is the ideal time to either renew or refinance. If you refinance or switch lenders before the maturity date, you will face a prepayment penalty. If you refinance, renew or transfer at maturity, there is no penalty. Real-World Example A homeowner with a $450,000 mortgage is reaching the end of their 5-year term. Their lender offers a renewal rate, but they also have $40,000 in high-interest credit card debt. Option 1: Renewal They accept the new term. Their mortgage stays the same. Their debt remains separate at high interest rates. Option 2: Refinance at Maturity They consolidate the credit card debt into the new mortgage. Their total monthly payments drop significantly, even after accounting for the new mortgage balance. In this situation, refinancing provides better cash flow and a simpler payment structure. Quick Summary Mortgage Renewal: Starts a new term for your existing mortgage Mortgage charge on your title stays the same Keeps all other terms the same aside from interest rate Can switch lenders at renewal through a transfer No penalty when done at maturity Mortgage Refinance: Pays off current mortgage and creates a new one New mortgage charge registered on your title Often resets the amortization period Can access equity or make structural changes Maximum 80% of property value for uninsured mortgages Incurs penalty if done before maturity Next Steps Understanding the difference between renewal and refinance helps you make informed decisions about managing your mortgage. If you have a renewal coming up or are considering accessing your home equity, now is a good time to explore your options. Whether you're looking to renew, refinance, or switch lenders, I'm here to help you navigate the process and find the best solution for your situation. Need help with your mortgage? Book a consultation or call 778-988-8409 . Glossary Amortization: The total time period over which you'll pay off your mortgage, typically 25-30 years in Canada. Insured Mortgage: A mortgage where the down payment was less than 20%, requiring mortgage default insurance to be added. Maturity Date: The end date of your current mortgage term, when you need to renew or refinance. Mortgage Charge: The legal registration of your mortgage on your property's title. Pre-payment Penalty: A fee charged by your lender if you pay off your mortgage before the end of your term. Refinance: Replacing your existing mortgage with a new mortgage, often with different terms or to access equity. Renewal: Starting a new term for your existing mortgage, typically just updating the interest rate. Term: The length of time your current mortgage contract is in effect, typically 3-5 years in Canada. Transfer: Moving your mortgage from one lender to another at renewal without changing other terms.

What Is an Insured Mortgage and How Does It Work?

By Tim Lyon • October 28, 2025
If you're buying a home with less than 20% down, you'll need something called an insured mortgage. Many borrowers find this confusing at first, especially since it doesn’t refer to insurance for you, the borrower. That’s why I have put together this straightforward breakdown so you understand what insured mortgages are, why they exist, and how they affect your purchase. What Is an Insured Mortgage? A mortgage must be insured when a borrower makes a down payment of less than 20% on a home purchase. The insurance protects the lender (not the borrower) in case the borrower defaults. The insurance is guaranteed by the federal government. So, why do we have this program? It allows borrowers to buy homes with smaller down payments and higher loan-to-value (LTV) ratios. Higher loan-to-value mortgages are inherently more risky because there is not much cushion if the housing market starts to decline. For example, if someone buys a $500,000 home with only 5% down ($25,000), they’ll need a $475,000 mortgage—this is a 95% LTV . If the market drops and the home’s value falls to $470,000, the mortgage would still be $475,000. If the borrower stopped making payments, the lender could lose money after selling the home and paying costs. That kind of loss, multiplied across thousands of borrowers, could threaten the stability of the entire banking system (as we saw in the U.S. in 2008). The mortgage insurance system is designed to prevent that scenario by spreading risk and keeping lenders protected. How Does the Insurance Work? You, the borrower, pay the insurance premium. It's typically added directly to your mortgage balance rather than paid upfront. The cost depends on your down payment size and amortization. Example: Purchase price: $500,000 Down payment: $25,000 (5%) Mortgage amount: $475,000 Insurance premium: 4.2% = $19,950 Total new mortgage: $494,950 The insurance does add cost, but insured mortgages usually offer slightly lower interest rates because the lender's risk is minimal. The rate savings don't fully offset the premium, but they help. The Insurer’s Role For insured mortgages, the insurer’s approval is the most important part of the process. If the insurer won’t approve the file, no lender can. Once the insurer signs off, we can typically find a lender to fund the loan. Canada has three mortgage insurers: CMHC (public) Sagen (private) Canada Guaranty (private) All of the insurers are backed by government guarantees and have to follow similar rules, but each has a few unique programs. Lenders usually choose the insurer, though I sometimes work with them to send a file to a specific insurer if it benefits the borrower. Qualification Rules Because insured mortgages are government-backed, the rules are strict: Debt ratios: 39% of your income can go toward your stress-tested mortgage payment, property taxes, heat, and half of condo fees 44% of your income can go toward the above plus your other debts Down payment: 5% on the first $500,000, 10% on the remainder Maximum purchase price: $1.5 million Amortization: Maximum of 25 years for most buyers; up to 30 years for first-time buyers who qualify under the new federal program Unlike with an uninsured mortgage, where lenders may have some flexibility if your income ratios are slightly above the limits, there is no discretion on an insured mortgage. If your ratios exceed the limits even a little bit, the insurer will decline the application. The Approval Process The process is similar to an uninsured mortgage, with one extra step: We submit your mortgage application to the lender of choice They do their initial review If that looks good, they package it up and send it to the insurer Once the insurer has reviewed and approved it, the file comes back to the lender for final review and approval Common Misunderstandings About Insured Mortgages Many borrowers are surprised to learn the following facts about insured mortgages: You do not need to be a first-time homebuyer to buy with less than 20% down You cannot buy an investment property with less than 20% down You can buy a second home with less than 20% down You cannot refinance an insured mortgage and keep the insurance. If you have an insured mortgage and do refinance, you will lose the insurance. This mostly affects the lender, but it also moves you to uninsured rates. Why Choose an Insured Mortgage? Given the cost and restrictions, why would anyone choose an insured mortgage? The main reason is accessibility . It allows you to buy a home without saving a full 20% down payment, which is increasingly difficult with high home prices and living costs. It can also be a strategic choice. Some buyers prefer to keep more of their savings invested or diversified instead of tying everything up in a down payment. If your investments are earning more than your mortgage costs, keeping that money invested might make financial sense. Real-World Example Let's say you're buying a $600,000 home. Here's how the costs compare between the minimum down payment for an insured mortgage and the minimum down payment for an uninsured mortgage: