Mortgage
Purchasing a home is one of the largest expenses most people will ever undertake. As in most countries, it is a somewhat complex process and having the guidance of a trained professional can help you make the best decisions based on your financial situation. It should be noted that you can go to a bank yourself to apply for and negotiate a mortgage as well, but given the complexities involved, if you can afford a mortgage broker, it might be helpful in ensuring a smooth process.
If you do decide to apply on your own, it is highly recommended that you receive multiple quotes from different banks before making your decision as small variations in rates and terms can have a significant impact on the overall cost of the loan.
General Rules regarding taking a Mortgage
- Banks will allow the monthly payback to be a maximum of 40% of your combined net salary/ies
- Israeli Citizens can take up to a 75% mortgage
- Israeli citizens must have at least 1/3 of their mortgage with fixed rates
- Maximum length of mortgage is 30 years and limited to the age of 80
Main Additional Costs
- Real Estate Agent –up to 2% + VAT of purchase price
- Lawyer –up to 1% + VAT of purchase price
- Mortgage Consultant – varies
- Life & Property insurance – varies. Mortgages will require you to have a life insurance policy attached to ensure payment of the loan in the event of the borrower’s passing.
Different types of Mortgages
Fixed Rate Loan
Rates locked in for a maximum of 30 years but they may carry a penalty if repaid early.
Variable Rate Loan
Long term and Short term.
Foreign Exchange mortgages
It is possible to take out a mortgage in a foreign currency such as US Dollars, Euros and Swiss Francs. The interest rate is linked to the LIBOR (London InterBank Offered Rate) of the currency you choose, plus a fixed premium. This type of mortgage can be helpful to someone whose income is in that currency to help protect against currency fluctuations as well as currency risk.
Shekel mortgage linked to the Bank of Israel (BOI) Prime rate
Payments fluctuate depending on the prime rate as set by the bank. The maximum mortgage period is 30 years.
Shekel mortgage linked to the Madad - מדד - Cost of living index
At the end of each month the outstanding principal of your mortgage is adjusted according to the Madad. Usually, the Madad increases by around 2% a year, thereby increasing what you owe accordingly. Although initially your payments might be lower, making this option more appealing, the overall cost by the end of the mortgage can be significantly higher than one linked to the BOI prime rate.
Note: Variable mortgages can change according to changes in the financial marketplace
Documents required by the Bank to get a Mortgage
- Tlushei Maskoret – תלושי משכורת – payslips, for the last three months. Please note that the government is just concerned with Net income, not Gross income (Gross income – Tax deducted = Net income)
- Last three months of bank statements
- Teudat Zehut and Sefach – תעודת זהות + ספח – ID card and addendum
Buying from a Kablan - קבלן - Developer
Payment schedule:
Payment to the Kablan is usually in stages, with funds transferred upon completion of each stage of the building. The mortgage payment schedule will increase accordingly as the building progresses.
For example:
If I’m taking a 1,000,000 shekel mortgage for 20 years at 6,000 a month and my payment schedule requires me to transfer 25% every 3 months – my monthly payback will begin at approximately 1,500 and will increase in increments of 1,500 every 3 months until the full 6,000 a month payback is realized.
Outstanding monies owed to the Kablan are linked to the Madad T’sumot HaB’niya – מדד תשומות הבניה – Cost of Building Index and therefore the amount you owe to the Kablan can/will increase based on changes in the Madad.
Buying a Second-Hand Property in Israel
The Bank will require an appraisal by a licensed Shamai – שמאי – appraiser and the mortgage will be for the lower amount between the appraisal and contract price.
For example:
A house is selling for 2 million shekels and the potential buyer is requesting a 50% mortgage (1 million). If the house is only appraised at 1.8 million, the potential buyer would be granted a 900,000 mortgage as opposed to the 1,000,000 they requested and therefore would have to cover a shortfall of 100,000 shekels.
Mortgage Benefits for Olim
The Misrad HaBinui Ve’Ha’Shikun
The Misrad HaBinui Ve’Ha’Shikun – משרד הבינוי והשיכון – Ministry of Construction and Housing runs a program that provides eligible Olim with a supplementary mortgage to help pay for the purchase of a home. This loan is called a Mashkanta LeZaka’im – משכנתא לזכאים – eligibility mortgage.
Eligibility
In order to be eligible for the Mashkanta LeZaka’im, an Oleh needs to apply and receive it within 15 years of their Aliyah date. A married couple with or without children, a single parent, or a single Oleh over 21 years old are entitled to a Mashkanta LeZaka’im if they have not owned an apartment in Israel within the last 10 years of their application.
How to apply
The first step is to apply for a Teudat Zakaut – תעודת זכאות – Zakaut certificate which is necessary to begin the Mashkanta LeZaka’im application process. Both of these procedures are handled by the following Israeli Banks:
- Bank Discount
- Bank HaPo’alim
- Bank of Jerusalem
- Bank Leumi
- Bank Mizrahi Tefahot
- First International Bank
- Mercantile Bank
It is important to note that the Mashkanta LeZaka’im is only supplemental and you will probably need to apply for a regular mortgage as well, given that the Mashkanta LeZaka’im is limited to how much it can provide, based on various factors which are assigned Nekudot – נקודות – points. The various factors are as follows:
- Number of years in Israel
- Family status
- Single parent status
- Age
- Disability
- Military service
- Buying in an area where the government has assigned additional benefits
Additional information
The maximum amount of a Mashkanta LeZaka’im is 300,000 NIS with an average given between 100,000 – 200,000 nis. The actual amount you can receive can only be determined as part of your application at one of the banks listed above and the number of points received can vary significantly from one Oleh to another.
The same banks can also offer you a regular mortgage which you might need to help pay for the bulk of the home price and the application process usually occurs simultaneously with your Zakaut application.
Note: You can have your Teudat Zakaut transferred from one bank to one of the other banks if you decide to get a mortgage from them as well.
For the Mashkanta LeZaka’im, the Oleh can choose various payback terms, ranging from 5-10 years and 10,15,20,25 and 30-year mortgages.
What makes the Mashkanta LeZaka’im different from a regular one is that it features below-market interest rates and does not have an early payment penalty. In addition, is only available with a fixed rate, linked to the Madad and adjustable interest rates or non-inflation-linked interest rates are not an option.
As always the information presented here is advisory only and is not legally binding. If you have any questions you should always seek out financial and legal professionals for clarification.
This article was created and translated by Shivat Zion and based on a presentation by Yoni Hyman, of Hyman Consulting & Investments, a member of the Israeli Hitachdut Yoatzei Mashkantaot. He can be reached at hymanconsultingoffice@gmail.com