The Bank of Israel announced Sunday a series of new measures to reform the market for mortgages.
The new measures will give borrowers better transparency and tools to compare different offers from the banks – and make the process, which is currently very opaque and complicated, simpler and more efficient.
Under the new measures, banks will be required to provide the customer with a standard approval in a uniform format. In addition to the mortgage plan that is offered, it will also include information for three “standard” models: a) 100% fixed unindexed; b) 1/3 fixed unindexed, 1/3 variable indexed and 1/3 indexed to the prime rate, and c) 1/2 fixed unindexed, 1/2 indexed to the prime rate.
Each plan will show the projected total interest rate, the total projected payments in the entire mortgage period and the highest monthly payment expected according to the forecasts. Banks will also offer simulation calculators for different mortgage plans.
In addition, the time for granting the approval will be shortened to just a few days, and all applications and approvals will be available online at all the banks. Mortgage refinancing information will also be made available when relevant.
“A mortgage is the largest financial commitment most households will encounter, but mortgage borrowers today are finding it difficult to understand offers or compare them without deep financial knowledge,” said Bank of Israel Governor Prof. Amir Yaron.
“The series of reforms that we are advancing is intended to give greater power to customers and make it easier for them to make one of the most significant financial decisions in their lives in a more informed way, and to help households’ economic conduct in the present and the future.”
Taking out a mortgage in Israel is especially complex because banks offer a variety of different tracks, including fixed-rate unindexed, fixed-rate indexed, variable-rate unindexed and prime indexed. Most mortgages are composed of a number of tracks, which enables greater flexibility in adjusting them to the customer’s needs, but also adds to their complexity. In most countries, mortgages are divided into just two main tracks: fixed rate and variable rate.
As a result of the reform, customers will be able to better understand the terms of the mortgage being offered and the implications of the future payments, make a more informed and easier comparison of various offers from a number of banks, and submit a request for a mortgage offer more rapidly and conveniently. These will also increase customers’ power, and thereby enhance the competitive environment in the market, the central bank said.