As mortgage brokers, “What interest rate can you offer?” is the question we most commonly hear from our clients – and we can understand why. Prospective borrowers from most Western countries are accustomed to certain norms in the mortgage market such as financing only being offered in the local currency and standardized conditions amongst lenders. However, In Israel there are significant differences amongst the lenders in regard to which mortgage products they offer as well as their conditions for funding. Therefore, while interest rates are very important, it becomes one of many variables which requires attention.
There are numerous costs and considerations which borrowers must take into account when structuring a mortgage. For instance, while some banks require life insurance as a guarantee against the mortgage, a cost that can range from a few hundred shekels a month to thousands of shekels a month, other banks may agree to waive this requirement entirely. Another variable to consider is whether or not the borrower intends to pay off part of the mortgage early. If so, there are certain mortgage structures that can protect the borrower against potential pre-payment penalties, as well as lower the interest rates on the portion of the loan which will be kept for a longer period. One of the most important variables to consider is how to best minimize currency risk. Borrowers who earn their incomes in Euros or US Dollars and are looking to avoid currency risk can structure 100% of the mortgage financing in those respective currencies – an option which is available in both fixed and variable rate loan products. Lastly, every bank has their own rules regarding which types of income they are willing to consider when underwriting a mortgage application. While some banks will accept all types of income, others are more stringent and will not accept some types, such as foreign business income or capital gains.
The Israeli mortgage market, uniquely complicated and fragmented, provides for a tremendous array of financing options – knowing how to navigate and capitalize on those options can make all the difference to your bottom line.