You might have probably heard someone you know mentioning they obtained their mortgage through a real estate broker. This role is becoming increasingly popular in Spain but is already very commonly used by home buyers in northern countries to obtain the best mortgage option.
What is a real estate broker?
Real estate brokers are a financial middle party specialized in mortgage loans. They need to be credited by the Banco de España to do their job since the effective date of the New Law of Mortgage Credit 5/2019 of March 15th (Nueva Ley de Crédito Hipotecario 5/2019 del 15 de Marzo).
The goal of a real estate broker is to obtain a mortgage with the best financial conditions when it comes to funding, interest, and based on the client’s profile and needs. They don’t only work with mortgages for homes but also those for self-promotion, investment properties, subrogations to improve or increase current mortgages, etc.
The first thing a real estate broker does when hired is asking the client about the type of mortgage they may desire or need. They will ask about the price of the property they intend to purchase, their financial conditions, and their occupation. Then, they will ask the client for documentation (the same a bank would ask to study the viability of the mortgage) and report risks so that they can start to negotiate with the different financial institutions.
A good broker will usually get conditions that clients who simply show up at a bank office can’t get on their own. They will negotiate the mortgage conditions with every bank in a completely personalized way. This is the main difference between brokers and mortgage simulators from the internet. The latter hardly ever reflect accurately what the offer would be for a specific client and their needs.
Consulting a broker is not just for when your bank denies your mortgage or when you don’t have savings and there is no option but ask for a mortgage. Brokers also help compare conditions that different banks may offer. Your bank might offer 80% funding over the purchase when it might be good to increase it to 90% to avoid decapitalization (especially now that the money value is so low). In addition, the assistance of a real-state agent has saved some clients up to 40.000euros in interest.
It is important to note that the real estate broker only receives their fees if their client signs the mortgage with one of the companies that the broker itself has found. Therefore, the client has no initial risk.
What are the advantadges and disadvantadges of hiring a broker?
As with everything, there are both positive and negative aspects to it. Keep in mind is that brokers are not only for clients with high incomes. They are also a great service to hire for anyone looking for a mortgage since they adapt to the client’s profile and financial needs.
Advantages of hiring a real estate agent
There are many advantages to hiring a real estate agent:
- Interest saving: you can get lower interest rates and better mortgage conditions
- Higher funding percentage: Depending on the case, they can even get the 100% of funding over the purchase.
- Time: a real estate agent will take less time to negotiate with all the financial institutions
- Movement: it saves you having to visit every company to collect information
- Special Conditions: not only will they negotiate interest rates but also discounts, supplements such as insurance, etc.
- Assistance: a broker will advise you and guide you throughout the entire process until signing before a notary.
- There are even free brokers
- They will help you with the valuation
Disadvantages of hiring a real estate agent
Hiring a real estate broker also has its disadvantages
- Some brokers only work with clients from certain institutions
- Fees. Despite them seeming high, though, they become a small part of the savings generated for the client in the long run.
- Free brokers have their limitations compared to those that get paid since their client is the bank itself. Therefore, the motive that moves them is different.
- Some brokers earn fixed installments or a provision of funds. They may even ask for an exclusivity contract.
We must say that, overall, hiring a real estate agent is a good option since there are no real risks to it when hiring a good one who only gets payed by success. Not only that but you ensure being able to get the best conditions in the market.
Now is a good time to buy a home or build one over a plot of land since, when it comes to mortgages, interest rates are especially low and will be so for a while.
This though is not a new situation. Interests have been low since the financial crisis almost a decade ago. Despite that, the Covid – 19 pandemic caused them to become even lower since central banks have focused on supporting a higher economic activity.
The official types of interest are now found at levels never seen before. They are the lowest the UK has a record of and are still below zero in the eurozone.
What is best: a fixed, variable, or mixed mortgage?
Fixed mortgages
Cuando contratamos una hipoteca fija pagamos la misma cuota mensual durante todos los años que la tengamos vigente. Esto implica que si la entidad bancaria establece una cuota de 300 euros al mes y tenemos una hipoteca de 20 años, durante ese periodo pagaremos 300 euros cada mes.
Los gastos para tramitar este tipo de hipotecas suelen ser más elevados.
Variable mortgages
In the case of a variable mortgage, we won’t pay the same every year in which the mortgage prevails. The bank establishes installment revisions (usually every six to twelve months) where, depending on the reference index established (Euribor in most cases), the monthly installment to be paid could either increase or decrease.
The positive aspect is that the expenses to process these types of mortgages are less than those of a fixed mortgage.
Mixed Mortgage
If you are doubting between a fixed or variable mortgage, know that there is a third type that, as its name indicates, is a mix of both. This implies that during some time you will pay monthly installments of a fixed amount (usually during 3 to 10 years) and, once that time is over, your mortgage will function as a variable one (the installments will chance during the established revisions according to the agreed-upon reference index)
The expenses to process these types of mortgages are similar to those of a variable one.
Then, which one should we choose?
All options need to be evaluated keeping in mind the following aspects:
- The type of profile: people who don’t mind taking a risk to end up paying less or those who prefer a stable installment/fee until they are done paying up the loan. Let’s also remember that being young and functionaries tends to provide mortgages with more advantages.
- How long we want to establish the mortgage for: these periods usually vary from 10 to 40 years.
- The type of building we want to buy: There are different types of mortgages depending on whether we want to buy an already built property or if we want to purchase a plot of land to build a home on it. (self-promotion)
- Do we want the mortgage for a home, a second residence, or an investment property?
- The advantages and disadvantages of a variable mortgage: it might be more affordable at first but, if its index of reference increases (the Euribor in most cases), so will the payment.
- Advantages and disadvantages of a fixed mortgage: there is a regular installment to be paid but higher opening costs and commissions. In addition, if the Euribor doesn’t increase (as seems probable in the years coming), we will pay a higher price than with a variable mortgage.
- Advantadges and disadvatages of a mixed morgae: we will pay a fixed price the first few years but then we will have to face the variations that come with a variable morgage.
Therefore it is of most importance evaluate the options available. That is an ideal situation to contact a real estate broker, as mentioned earlier.
Profesional consultations
We interviewed the manager of The Lion Brokers, a business dedicated to financial intermediation and, amongst other services, to mortgage intermediation for individuals. We asked him about his general view on how the real estate market is responding to the crisis caused by covid19 and why, even though we are still in the middle of a sanitary crisis, the demand for their service is growing. He explained the reason for the success of his business.
“We believe that our business is growing not because there are more mortgages than in previous years, which is also happening, but because there is a growing tendency in clients for hiring the services of a professional. This is not a tendency particular to our business. Clients are becoming more demanding while there is less time to get things done. Therefore, businesses such as consultancy firms, real estate agents, or personal trainers, for instance, are also on the rise. In reality, the purchase and sale of real estate properties, and therefore the number of hired mortgages, have increased in the year 2021 when compared to 2019, the year pre-covid19. This could either be because of the purchase and sales that couldn’t take place in the year 2020 or because that is the tendency and the client has also changed. It is a fact that brings us closer to Northern countries where brokers, financial advisors, or consultants are more used both at an individual and business level.”
He also told us that:
“Our mission is to professionalize our sector, which might not have the recognition it deserves due to the years in which we find ourselves since it has been over a decade that the real estate boom and our vision is to guarantee to our clients that hiring our services we will be able to accomplish very different conditions, in most cases, than those that they can get on their own”
