Unless you are lucky and have obtained the full capital to purchase the apartment, chances are that it will take a few more years before the apartment is truly yours, in the meantime it belongs to the bank. To be able to pay for an apartment in Israel, which nowadays can cost millions of shekels, you will probably need a loan. A mortgage is a type of very large, long-term loan that the bank grants you in exchange for pledging the property.
If you too are destined to take out a mortgage in order to succeed and purchase an apartment, you may be comforted to hear that you are not entirely alone, about a third of households in Israel pay a mortgage. Does this mean that everyone shares the same burden? Absolutely not. There are many elements that influence the way your mortgage will look, and primarily two questions that will decide the future of your mortgage – how much equity you already have and how much the apartment you want to purchase is actually worth.
Mortgage? Not for everyone
Let's start by saying that not everyone can take out a mortgage for any apartment they want. In order to take out a mortgage, you need to meet several conditions set by the Supervisor of Banks. For example, when purchasing a first apartment , the loan value cannot exceed 75% of the apartment's value. This means that if you purchased an apartment for one million shekels, you should have equity of at least 250,000 shekels. If you are purchasing an additional apartment for investment, you can receive financing of no more than 50% of the apartment's value.
Have you found that you actually have the minimum initial capital required to purchase your apartment? It is important to recognize that you are going to repay the rest of the amount with compound interest, for example, if you took out a mortgage of 750,000 NIS, you will probably end up paying more than 1 million NIS for the loan, so before you close the deal, you should reconsider your choice of apartment in relation to your equity, and see if you might be better off choosing an apartment at a lower price so that you can pay a higher percentage in equity. Another option is to simply wait a few more years until you increase the savings you have accumulated, in both cases you will be able to save on interest payments.
Fixed-interest or variable-interest rate loan? It's time to get on track
The whole interest rate issue can be a bit confusing, but to make an informed choice when choosing a mortgage route, it's best to have a good grasp of the material. In a few words, the interest rate on a mortgage can be a fixed interest rate, meaning an interest rate that hardly changes at all throughout the entire term of the mortgage, an interest rate that changes every month according to changes in the prime interest rate, or an interest rate linked to a foreign currency and changes according to the exchange rate of that currency.
The repayment itself can also be fixed, linked to the construction input index or linked to the consumer price index. Ultimately, your mortgage will probably not consist of a single route but a combination of several routes. The role of mortgage advisors is to recommend the most appropriate mix for you based on your situation and the market situation.
So how much will it cost you in the end? It depends on the amount of the repayment and the duration of your loan. The lower the repayment and the longer the loan, the more interest you will pay. Note that here too, the Bank of Israel places some restrictions, firstly, mortgage payments cannot last more than 30 years and in addition, the amount of the monthly repayment cannot exceed 50% of your disposable income. For example: if after fixed expenses such as rent or payments on other loans, you have NIS 10,000 left each month, your monthly repayment cannot exceed NIS 5,000 per month.
The monthly mortgage repayment may place a heavy burden on your financial management over the years, and therefore, although the Bank of Israel limit is 50% of the monthly repayment, economists recommend taking a repayment that does not exceed 25% of your disposable income.
Remember that ultimately the mortgage is the tool that allows you to fulfill your dream of owning a property. Choose an apartment that matches your personal capital and financial situation, and you too can eventually become a property owner.
