A mortgage broker is a professional expert in managing mortgage loans, but they are also responsible for conducting financial analyses to find the mortgage that best suits their clients. If you want to break into the mortgage brokerage business, you must understand the basic concepts explained in this blog post.
To practice as a mortgage broker, you must prepare by taking various courses that will help you thoroughly understand the complexity of mortgages, as well as pass a certification exam before the Association of Mortgage Brokers (ABH) in Mexico. Becoming a certified broker will give you a competitive advantage, as well as the backing of an institution that guarantees you have the necessary knowledge to practice.
Basic Concepts of Mortgage Brokerage
A mortgage loan is financing granted by a financial institution, but unlike conventional loans, a real estate property is used as collateral. The following definitions are key in mortgage processes:
LTV (Loan-to-Value) / Aforo It is the maximum loan amount expressed as a percentage relative to the commercial appraisal value of the property and the price agreed upon in the sales contract. Generally, for home acquisition mortgages, it is a maximum of 90%.
Appraisal / Avalúo A report prepared by a qualified expert appraiser expressing their opinion on the property's value and its remaining useful life. This document is validated by the financial institution granting the credit.
Principal / Capital Refers to the amount of money owed to the financial institution. This decreases with each monthly payment, according to the proportion agreed upon in the amortization schedules.
Total Annual Cost (CAT) / Costo Anual Total The present value of the interests, commissions, and insurance that the client must pay when taking out a loan. The CAT is expressed in annual percentage terms, so it is always higher than the nominal interest rate. In other words, it is the effective interest related to the loan amount, used as a comparative figure between different banking products.
Down Payment / Enganche Refers to the difference between the granted loan and the value of the property. This difference must be paid by the buyer before, during, or at the end of the purchase.
Payment Factor per Thousand (FPM) / Factor de Pago por Millar This factor indicates the monthly payment the client will make for every thousand pesos of credit. It is calculated by multiplying the loan amount by the FPM and dividing by one thousand. Note that there is also an FPM for insurance; the sum of both is what the client will pay monthly.
Total Payment Factor (FATP) / Factor Total de Pago The amount resulting from adding all the monthly payments of a mortgage loan and dividing it by the requested amount. This data helps guide clients on which is the lowest-cost credit on the market.
Interest / Interés Refers to the cost of the requested money, which is a percentage of the balance owed by the client. Interest is charged on the outstanding balance (the actual debt remaining each month after the principal payment).
Payment-to-Income Ratio (PTI) / Relación Pago Ingresos This ratio is based on the requested loan payment compared to the client's gross income. This indicator is crucial for determining if the client meets the requirements for a line of credit. Depending on the bank, specific percentages or corresponding factors are established for this relationship.
Knowing these and other concepts perfectly, as well as correctly performing the analysis and interpretation of these factors, is the primary job of a broker. Their commitment is to find the mortgage loan that best suits their clients according to their specific needs.