1) Mix up your mortgage product term length: Fixed rate loans are cheaper the shorter the duration, while adjustable rate loans are typically the same rate – regardless of the term. If you plan to take a 20 year term comprising of both fixed and variable rates (short-term variable rate loans have no pre-payment penalty), take a 15 year fixed on 70% of the loan and a 30 year adjustable on 30% of the loan instead of a 20 year term on both. This will yield interest rate savings with minimal risk.
2) Minimize risk by matching the mortgage to the currency you earn: The market today offers foreign currency loans in a variety of currencies – in both fixed and variable rates. Israeli citizens who earn their income in foreign currency, and who may not take more than 1/3 of their loan in a variable rate (due to banking restrictions), may still structure the entirety of the loan in foreign currency. If renting the property out, consider taking a portion of the loan in NIS as the rental market today in Israel is predominantly priced in NIS.
3) Don’t be too afraid of the adjustable: With NIS adjustable rates under 1% and interest rates forecasted to remain low, it will likely take a long time for rates to move up enough to make the NIS adjustable loan uneconomical. Mixing a fixed rate with an adjustable under 1% can help lower your effective interest rate significantly while paying down a greater portion of your principal with every monthly payment.
Co-Founder – First Israel Mortgage