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Property Mortgages in Israel

Applying For a Mortgage

To get a mortgage, the Buyer must prove to the Lender his/her identity and that he/she has the resources to repay the mortgage at the approved rate. Documents typically required for proof are:

  • Recent bank statements
  • Recent tax returns
  • Recent pay slips
  • ID (Teudat Zahut, a passport and/or driver’s license)

If a significant period of time passes between the date of approval for the mortgage and when the Buyer wants the funds, the Lender may demand that the Buyer update the bank/lending institution with the relevant documentation.

In terms of income to be approved for a mortgage, the Lender requires the Buyer to have an income of three times the monthly mortgage repayment. However, if the Buyer does not have the stipulated monthly income to qualify for a mortgage, he/she can still qualify for one provided he/she has a co-Buyer at the Lender’s discretion.

In addition, if a person is buying a property from a seller (as opposed to a developer) the bank will demand that the Buyer hire an appraiser to review the property before approving a mortgage. An appraisal will cost the Buyer between 1,500 – 3,000 NIS.

Ishur Ikroni

The Buyer is given an Ishur Ikroni (a letter of pre-approval) from a Lender. This will provide the Buyer with an exact figure of how much the Lender will lend him/her, based upon his/her circumstances at the time of applying for the mortgage loan. The Ishur Ikroni is valid for 90 days, but it can be renewed if the Buyer provides the Lender with updated documentation, as above.

An Ishur Ikroni can be given before the Buyer has found a property. In fact, this letter can be very helpful for the Buyer. It can enable him/her to focus or expand his/her search for a property, based upon how much he/she can borrow.

However, while the Ishur Ikroni is valid for 90 days, the Buyer must be aware that once the Lender has approved an interest rate, the approved rate is valid for only 24 days. After this time-period lapses, the Buyer will need to have the interest rates re-approved.

jerusalem property mortgages

Requirements for the Mortgage Loan

After being given an Ishur Ikroni, the Buyer must undertake two requirements to be given the funding for the mortgage loan:

1) Open A Mortgage File

The Buyer must open a mortgage file at a bank. To open a mortgage file, the bank charges an ‘origination fee,’ which is usually around 0.25% of the mortgage loan.

For example, again, if a Buyer takes a mortgage loan of 1,000,000 NIS, the bank will charge him/her 2,500 NIS (1,000,000 x 0.25) as an origination fee.

Note, Hebrew is the dominant language in Israeli banks. Non-Hebrew speakers who wish to open a mortgage file should either bring with them a Hebrew speaker or find a bank where someone will deal with them in English.

2) Take Out Life and Property Insurance

After opening a mortgage file, the bank will require the Buyer to take out Life and Property Insurance. (For more information on the cost of Life and Property Insurance, click here.) Life Insurance will likely cost the Buyer around 100 NIS a month; and the property insurance will cost a further 450 NIS for every 100,000 NIS of the purchase price of the property, per annum.

For example, a Buyer will pay around 1,200 NIS (100 x 12) a year for Life Insurance; and if he/she purchases a property for 1,000,000 NIS, he/she will pay 4,500 NIS (1,000,000/100,000 x 450) a year. This comes to a total of around 5,700 NIS per annum.

How Much Can a Buyer Borrow?

1) An Israeli Resident

For a mortgage on a First Property, the Lender can lend the Buyer up to a maximum of 75% of the purchase price of the apartment/house. (Note, to qualify for a First Property, the Buyer and his/her spouse/partner must be buying a property for the first time. If the Buyer is married or with someone who owns a property already, the Buyer will not be able to borrow up to the above-mentioned amount from the Lender. Rather, he/she will have to borrow under the terms of a mortgage for a Second Property.)

For a mortgage on a Second Property, the Lender can only lend up to 50% of the purchase price of the property.

Example 1: For an Israeli resident buying a First Property at a cost of 1,000,000 NIS, he/she can borrow up to 750,000 NIS (1,000,000 x 0.75) as a mortgage loan.

Example 2: For an Israeli resident buying a Second Property at a cost of a 1,000,000 NIS, he/she can borrow up to 500,000 NIS (1,000,000 x 0.50) as a mortgage loan.

 

 

2) A Foreign Resident

A foreign resident can borrow up to 50% of the purchase price, but this figure can be increased by a further 20% (so up to 70% in total) with additional types of loans.

For example, if a foreign resident buys a property at a cost of 1,000,000 NIS, he/she can borrow up to 500,000 NIS (1,000,000 x 0.5), with the potential to borrow a further 200,000 NIS (1,000,000 x 0.2) due to additional types of loans, making the potential borrowing total up to 700,000 NIS (500,000 NIS + 200,000 NIS).

Mortgage Loans and Rates

In Jerusalem/Israel, a Buyer can take out a mortgage loan for up to 30 years, so long as the loan is amortized (meaning that the principle and the interest is paid off) by the time the Buyer is approximately 75 years old. This can be negotiated, though, since there are many different types of mortgage loan packages available, with varying degrees of complexity and rates.

It is impossible to say what mortgage structure, loan and rate is best for the Buyer. The mortgage package that the Buyer is given by the Lender depends entirely on the Buyer’s circumstances at the time of applying. Nevertheless, below are some of the main products available.

 1) A Shekel-based Fixed-Interest Loan

This is a loan where the principle and the interest rate is fixed from the outset. The advantages of this type of mortgage:

  • The agreement is set from the beginning to the end of the loan.
  • The buyer knows exactly how much he/she must pay each month.
  • The loan principal (the amount excluding interest) decreases over time, so the buyer pays less over time.

The disadvantage of this type of mortgage:

  • There can be possible penalty clauses for the Buyer if he wants to repay the loan early when the rates are lower than when the loan was approved.

2) A Shekel-based Variable, Prime Interest Rate Loan (Non-Linked)

This is a loan with a variable interest rate that is not based on inflation. Rather, it is based on the Prime Lending Rate, which is set by the Bank of Israel every six weeks. The advantage of this type of mortgage

  • The loan principal (the amount excluding interest) decreases over time, so the buyer pays less over time.

The disadvantages of this type of mortgage:

  •  The Buyer cannot borrow the whole amount of the mortgage on a Prime-based loan, as the Lender usually only grants a maximum of a third on these terms.
  • The monthly repayments change every six weeks, depending upon the rate that the Bank of Israel sets.
  • The Buyer must keep on top of the Prime Lending Rate changes and budget accordingly in advance.
  • Depending upon the changes to the Prime Lending Rate, the Buyer could pay more in mortgage repayments than he/she initially intended.

3) Foreign Currency-based Loan

A buyer can take out a mortgage in Israel in a currency other than the NIS. Israeli banks/lending institutions allow for foreign currencies, such as Dollars, Sterling and the Euro. The interest rate for a foreign currency-based mortgage is based on the LIBOR (London Inter-Bank Offered Rate) of that currency, plus a fixed premium set by the Lender. The Advantages of this type of mortgage:

  • The buyer dodges inflation with regards to the NIS.
  • The relative strength and stability of the Sterling can make a loan in a foreign currency a more financially sound decision.
  • Buyers may feel more comfortable with a loan in the currency from whence they came.

The disadvantages of this type of mortgage:

  • The current uncertainty with Brexit and its impact on financial markets puts the Sterling in a precarious situation.
  • If the Sterling falls, then loans in foreign currencies can cost the buyer (significantly) more than he/she had initially intended.
  • The buyer won’t receive the same legal protections as he/she would if he/she were using a bank in the UK.

Again, it is worthwhile for a Buyer to go a broker in Jerusalem to help him/her determine which structure to agree to. The above is not a comprehensive list of what is available, as there are many other variable interest rate loans, linked and not-linked to inflation.

In fact, a Buyer can take out a mortgage loan on a mixture of these types of products, depending upon his/her circumstances; and a foreign resident can take out the whole of his/her mortgage loan in a foreign currency, but an Israeli cannot.

How Does The Lender Evaluate Giving a Mortgage Loan?

 The Lender decides if the Buyer will be granted a mortgage and under what terms. First, an Israeli Buyer has to show that he/she has the capability to put down a minimum of 25% of the purchase property, while for a foreign resident it is a minimum of 50% of the purchase price of the property.

After that, the Lender will assess what arrangement it will come to with the Buyer, based on a point system under the following criteria:

  • The age of the buyer (the older the buyer, the more points he/she will be given).
  • The marital status of the buyer.
  • The size of his/her family.
  • If there is a guarantor or a co-buyer.

Mortgage Benefits?

There are no benefits or special rates for Olim Chadashim (new immigrants), Ktanim Chozrim (returning minors), and Ezrachim Olim (Israeli citizens born abroad) when it comes to mortgages in Israel.

Mortgages – Moises Zack
firstisrael.com/moises-blogroll

The Importance of a Broker

The process of getting a mortgage in Jerusalem can appear daunting at the outset. The Buyer may not know who to speak to in order to get a mortgage; or where to go; or what paperwork he/she needs to do.

What’s more, the Buyer could be unaware of how much he/she can borrow; or what loans and rates are available; and how much the mortgage will cost.

The above may be enough to deter a Buyer from purchasing a property in Jerusalem. This is where a broker can be of assistance. Theoretically, having a broker is not a requirement to getting a mortgage as a Buyer can go straight to a Lender (a bank or a lending institution). However, this is not advisable as it means that the Buyer will only be given a mortgage package that is in the interests of the bank/lending institution, rather than the Buyer. Invariably, this will cost him/her thousands of extra shekels (if not much more), as well as waste his/her time and cause him/her hassle with the bureaucracy.
A broker, on the other hand, takes care of the process. Moises Zack, a respected mortgage broker living in Jerusalem, emphasizes that it is in the Buyer’s interests to work with a broker for three reasons:
1) The broker can relieve the Buyer of the stress of the process;
2) The broker is in the best position to structure a mortgage loan that best suits the Buyer’s circumstances (especially as there is no transparency in Israel with regards to products and interest rates).
3) The broker can save the Buyer money by structuring the mortgage loan to best fit the Buyer’s circumstances.

For his/her services, the broker usually charges the Buyer around 1% of the loan amount, plus VAT (currently at 17% in 2019).

For example, if a Buyer takes out a mortgage loan of 1,000,000 NIS, the Buyer will pay the broker 11,700 NIS ((0.01 x 1,000,000) + (0.01 x 1,000,000 x 0.17) = 11,700).

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Michael Steinmetz

Jerusalem Real Estate

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