There are a number of mortgages available from the banks in Israel. The following is a brief summary of some of the most popular mortgage options. Each mortgage is designed and suitable to a particular client depending on a number of factors, including but not limited to: Currency of income, place of residency, financial goals, economic outlook and economic standing.
Banks offer completely fixed shekel loans for up to 30 years. This loan is not linked to any index so that your mortgage payments stay the same throughout the life of the loan. Any fixed loan in Israel carries the risk of pre-payment penalties.
A mortgage at a fixed interest rate linked to the consumer price index for a period of 4 to 30 Years. Rates are currently at or near all time lows – between 2% and 4% depending on the term of the loan, the loan-to value ratio, the borrower’s creditworthiness and more. The principle is re-adjusted each month according to CPI. This is considered fixed, but in fact will go up throughout the life of the loan as CPI increases. This loan has the risk of pre-payment penalties.
This loan is similar to the CPI linked fixed loan, except the interest rate will change throughout the life of the loan (according to the negotiated term). Though this has the added risk of the interest rate changing over time, it also has the advantage of not having any pre-payment penalty.
Current regulations allow for up to a third of someone’s mortgage to be variable and linked to the Prime rate, which is set by the Bank of Israel. Prime is currently very low and many banks can offer rates at approximately Prime minus .75%.
A foreign currency mortgage is available in a number of the major currencies. The mortgage’s interest is the LIBOR rate plus a fixed premium set by the bank. These mortgages are generally available up to 30 years and the repayment is in the currency that was borrowed.
A Dollar linked mortgage is a shekel mortgage linked to the dollar rate for a period of up to 30 years. The currency of loan and repayment is in shekels according to the dollar rate. The mortgage’s interest is the LIBOR rate plus a fixed premium set by the bank.
Similar terms to dollar linked, except linked to the Euro. This loan is typically most suited to a person whose primary income is in Euros.
Currently there are fixed dollar loans available for a ten year term. There is also a dollar loan for up 25 years that adjusts every five years (commonly referred to as Adjustable Rate Mortgages). There is no long term completely fixed dollar loans beyond ten years.
A loan extended to borrowers who own an apartment, for purchasing a property in the interim period until their previous apartment is sold. This is a short-term loan for a period of up to two years. This is available as a loan of up to 50% of your first property.
General Terms and Conditions
- Depending on the bank the LIBOR rate may change every 3 or 6 months.
- Most dollar-linked loans have the possibility of early repayment without incurring any major penalty or fee.
- In some cases it is possible to arrange interest only payments up to a maximum of 2 years depending on the financial strength of the applicant.