What is meant by capacity in mortgage lending?

In the context of mortgage lending, capacity refers specifically to the borrower's ability to repay the mortgage. This involves assessing the borrower's income, expenses, credit history, and other financial obligations to ensure they can handle the repayments on the loan. Capacity is a crucial factor in the underwriting process, as lenders need to evaluate the risk associated with granting a mortgage loan.

Understanding a borrower's capacity provides assurance to the lender that the borrower will likely meet their repayment obligations, thus reducing the risk of default. This evaluation is typically conducted through a debt-to-income ratio analysis, where the lender compares the borrower's monthly debt payments to their gross monthly income.

Other aspects mentioned, such as the total amount of money a borrower can borrow, the age of the borrower, and the term length of the mortgage, do not directly address the ability to repay the loan. While these factors may play a role in the overall lending process, capacity focuses specifically on the financial capability of the borrower to manage the mortgage payments effectively.