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Mortgage Expert: Inflation and interest rates
Avner Buntman
03/12/2008
Vol III: We are in the process of doing a major renovation. We have taken a loan from a major bank with a good interest rate. We have money invested abroad but my husband feels that our investment can pay for our mortgage. I am concerned about inflation pushing up our interest rate. Your thoughts?
Through their business, Avner Buntman and his consulting company Mortgage Israel see a real need for people to understand the mortgage industry in Israel. As the first english-speaking mortgage company in Israel, Avner and his team have given various seminars for Nefesh B'Nefesh and have helped hundreds of new olim and overseas buyers with their mortgage needs. Their firm specializes in securing residential and commercial loans primarily for the Anglo market in Israel. They will be answering questions on the Israeli mortgage market and guiding readers into making the right financial choices. Click here to send your questions to Avner and please leave your comments on the Q&A below. Vol III Q: We are in the process of doing a major renovation. We have taken a loan from a major bank with a good interest rate. We have money invested abroad but my husband feels that our investment can pay for our mortgage. I am concerned about inflation pushing up our interest rate. Your thoughts? A: The question of whether to take a loan and keep money invested, really depends on a number of factors. The important ones being, your total interest rate on the mortgage (including inflation), your return on the current investment, and also the relative risk of that investment. Often it can be helpful to consult a financial planner to determine if you are going in the right direction, as a large part of the answer, may involve taking a look at your overall financial situation. Vol II Q: Appraiser. What does 600 NIS buy? What else could a bank require? What would the additional info cost? A: Thank you for your question. The shorter, cheaper appraisal required by most Israeli mortgage banks, includes basic information such as current value of the property, quick resale value, rebuilding costs (used for insurance purposes) and a short description of the state of the property i.e # of rooms, size, additions etc. The more expensive appraisal is usually required by commercial banks, or on certain luxury properties, if there is a large mortgage requested. It includes many more details about the state of the property, including detailed plans, detailed description of construction, closer attention to property title and registration information. A longer appraisal gives the bank a broader, more in depth picture of the asset. It can take 2-3 weeks to do this type of appraisal as often documents need to be ordered from the from the city council. Q: Does the Israeli market rely on the US credit score? A: Some Israeli Banks require a credit score and report if you are living/working in the USA. Although they will check the credit information, it is only one of the factors that the banks will consider in making their decision and does not carry the same weight as it does in the US. Banks in Israel will want to see your income along with credit information. There are however some banks, that do not ask for credit information, so this can be useful for people with credit issues. Please let me know if you have any further questions, Q: Can you tell me if it is worthwhile for me to refinance my mortgage which I took out 5 months ago for my home in Yishuv Adam? A: My apologies for the delay in replying to your question. Depending on what your current mortgage rate is, it may well be worthwhile to refinance as rates are low at present. Historically speaking we are presently at some of the lowest rates the Israel banks have been able to offer. The decision to refinance will depend on a number of factors, including, your current rate of interest, type of loan, penalties (if any) to get out of your current loan program and other personal financial variables. Please feel free to contact our office and one of our consultants will be happy to help you. Q: I have recently been offered some land at a very good price in Israel, my only concern is that the plot is contested by an arab family, what support and protection can I expect from the Government. A: You need a good lawyer. * * * Vol I Q: We intend purchasing a small apartment to rent out until we return to Iive in Israel in 2 years time. We will require a mortgage of about $60,000. What documentation is required for taking out a mortgage in both my and my wife's name. I will then bring it all with me on my forthcoming trip. Also would you recommend a shekel linked mortgage as we do have a bank account in Israel. Thank you. A: Generally the banks will want to see proof of your current and past 2 years income, usually in the form of tax statements. In some cases the bank will accept a letter from your accountant. You will also need to show 3 months of your bank statements. Depending on the loan to value and your current income, the bank may want to see further assets to make sure you can comfortably repay the loan. They will also require a copy of your passports and another photo ID. With regards to taking a shekel linked mortgage, this may or may not be your best choice. It really depends on current interest rates and market conditions, along with your individual financial situation. In all cases you will require a bank account in Israel and this is not a reason to take a shekel linked loan. If you have any further questions please feel free to ask. * * * Understanding the Israeli Market A mortgage for most people is not only the biggest financial decision of their lives but is also a personal decision due to everyone's different circumstances. The process of obtaining a loan in Israel has a number of steps from the initial pre approval stage to final payment by the bank. The following is a short guide to get you started. What are some of the most popular loan options available in Israel? 1. Shekel Mortgages The shekel mortgage is the most common type of loan offered by Israeli banks. It is generally a variable rate mortgage, linked to the Bank of Israel Prime rate or to Madad (cost of living index). The maximum mortgage period is up to 30 years. 2. Foreign Currency Mortgages: This is a mortgage in a foreign currency such as Dollars, Sterling, Euro, Swiss Franc or Japanese Yen. The interest rate is based on the LIBOR (London Inter Bank Offered Rate) of that currency plus a bank fixed premium Is it possible for a foreign resident to get a loan in Israel? Yes. Currently there are a number of banks that offer loans to foreigners. What is the process involved in obtaining a loan? The first step is usually to be pre-approved from a bank to determine how much many the bank is willing to lend you. Getting pre-approved allows you to know exactly how much you can spend on a house and will allow you to make a quick decision to purchase, should you find a property. Once you have purchased the property, the bank will prepare the loan agreement for you to sign and then there are various legal procedures that need to be taken care of. How long does it take to get a mortgage? The average processing time from approval to payment is about one month. How much income do I need to be approved for a loan? To get approved for a mortgage, a potential borrower needs to show the bank that they have the capacity to repay the loan from their current income. Israeli banks almost always require income verification even if the percentage of financing is relatively low. As a general rule the banks require monthly income to be three times the monthly mortgage payments. How much of loan to property value will the banks in Israel give (LTV)? Most banks will lend up to 70% of the value of a property, and sometimes higher if you have zakayut (points) through Aliya. It is possible to get an even higher loan to value (LTV), up to 95%, using a third party mortgage insurance company (EMI). How does the appraisal work? The bank requires a property to be appraised by a bank approved appraiser. The appraiser will check other similar, recently sold, properties in your area and along with other factors determine how much your property is worth. The banks percentage of financing (LTV) is based on the lower of the purchase price OR appraised value. What are some of the costs involved in taking out a mortgage? Processing or Origination fee: This is a fee paid to the bank and is between .25% and .5% of the loan amount depending on the bank. Appraisal: The cost of an appraisal is usually around 600nis, however, some banks will require a more detailed and costly report. Monthly Life insurance and Property insurance: In most cases these are both mandatory for all borrowers. Costs vary based on price of property, age and health of borrowers. Please consult with an insurance agent for specific costs. Other Costs: Mortgage registration fee - 155nis, Power of attorney - 240nis How do I qualify for a mortgage for New Olim? Government mortgages provide Olim, who are not homeowners with a limited, low interest mortgage. To qualify the person or family must be a first time buyer - "A person who isn't and hasn't been registered as owner or part owner of a property" and is over the aged over 21 . To conclude Understanding the terms and conditions of each loan product offered by Israeli banks is essential to ensure that you are getting the option that best suits your financial needs. It is best to compare a few loan options and negotiate with the banks on the rates and terms before deciding on any loan. Try to get as much information as possible from your bank, and speak with friends and co workers about their experiences. Remember not all banks were created equal, and definitely no one single loan is suitable for every individual. * * * Cafe Oleh is the place where you can join in and be published. To send us your comments, article ideas, suggestions and community listings, click here. In the meantime, check out our comprehensive listings and calendar services.
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