A Guide to Mortgages in Israel
By: Davi Katz and Aaron Morgan, Mortgage Israel Consultants

By Aaron Morgan & Davi Katz (Mortgage Israel Consultants)
A mortgage for most people is not only the biggest financial decision of their lives but is also a personal decision due to everyone's different circumstances. There is a wide range of mortgage options offered by the various lending institutions, and it is important to select the loan that best fits your financial profile.  The process of obtaining a loan in Israel has a number of steps from the initial pre approval stage to final payment by the bank.  The following is a short guide to get you started.

What are some of the most popular loan options available in Israel?
1. Shekel Mortgages 
The shekel mortgage is the most common type of loan offered by Israeli banks.  It is generally a variable rate mortgage, which means that your repayments are not fixed for the period of the loan and will increase or decrease depending on current market rates and economic conditions.  The majority of shekel loans are either linked to the Bank of Israel Prime rate or to Madad (cost of living index). The maximum mortgage period is up to 30 years.  Recently a few banks have offered a completely fixed rate shekel loan, at higher interest rates than the variable option. 

2. Foreign Currency Mortgages:
This is a mortgage in a foreign currency such as Dollars, Sterling, Euro, Swiss Franc or Japanese Yen.  The interest rate is based on the LIBOR (London Inter Bank Offered Rate) of that currency plus a bank fixed premium. Many homeowners choose a foreign currency mortgage that parallels the currency of their income in order to 'hedge' themselves against currency fluctuations.  For example:  A US Dollar income earner might choose a US Dollar mortgage in order to avoid the impact of a depreciating US Dollar. Other homeowners choose foreign currency mortgages because of more competitive interest rates.  Taking out a loan in a currency other than the currency of one’s income involves substantial currency risk. If the currency appreciates one can find themselves paying far more for their loan than anticipated.  

3. Fixed Loans:
Until recently, almost all loans in Israel were linked to variable rates.  More recently, some lending institutions have begun offering fixed rate loans for a maximum period of 20 years.  Although these mortgages guarantee the payment for the duration of the loan, they can sometimes have significant penalties in the event that the mortgage holder prepays the mortgage.

4. Home Equity loans:
Home equity loans (known as “all purpose loans”), are available for people who wish to borrow against the value of their home for purposes such as renovations, debt consolidation, business financing or even purchasing a second home.  The interest rates are usually higher for this type of loan, than a regular mortgage.  

Is it possible for a foreign resident to get a loan in Israel?
Yes. Currently there are a number of banks that offer loans to foreigners. Each of these banks has its own individual products and terms of loan. The rates and service can vary greatly between different lenders.  Over the past few years there has been a large increase in the number of foreign buyers, both as second homes and for investment purposes.  A loan can be arranged for a foreign resident without having to ever visit Israel.

What is the process involved in obtaining a loan?
The actual process involved in getting a loan involves a number of steps.  The first step is usually to be pre approved from a bank to determine how much many the bank is willing to lend you.  Getting pre-approved allows you to know exactly how much you can spend on a house and will allow you to make a quick decision to purchase, should you find a property.  Often people look for a home first, and then find themselves rushing to get approved from a bank to see if they can actually buy it.   Once you have been approved for a loan and found the home you wish to purchase, it is a good idea to show the bank all the legal documentation associated with the property to make sure there are no technical legal issues from the banks side.  The bank will also eventually require an appraisal of the property.  

Once you have purchased the property, the bank will prepare the loan agreement for you to sign and then there are various legal procedures that need to be taken care of.  Such as registering the bank loan on the title of the property, notarizing documents, confirming where the mortgage funds are to be paid etc.  This intermediate processing stage of legal documentation can sometime be fairly complicated, and often take considerable time.   Unfortunately it is not always possible to know ahead of time what will be involved. 
The average processing time from approval to payment is about one month.  If you are located outside of Israel the average time is about six weeks.  However, there are many instances where things take longer and extra time to pay should be factored into any purchase contract.

  How much income do I need to be approved for a loan?
In order to obtain a loan from an Israeli bank, you will need to have your income approved by the bank.  To get approved for a mortgage, a potential borrower needs show the bank that they have the capacity to repay the loan from their current income.  Israeli banks almost always require income verification even if the percentage of financing is relatively low.  As a general rule the banks require monthly income to be three times the monthly mortgage payments.  For example, if your mortgage payments are 4000nis per month the bank will want to see that you have income of 12 000nis per month.  There is some flexibility on this rule, especially if a client can show other savings or assets.   In most cases the banks will want to see a client’s current income; including their most recent pay slips, bank statements and ID documentation.  For a foreign resident, the past two years tax returns, credit history, and a letter from an accountant will usually suffice. 

How much of loan to property value will the banks in Israel give (LTV) ?
Most banks will lend up to 70% of the value of a property, and sometimes higher if you have zakayut (points) through Aliya.  It is possible to get an even higher loan to value (LTV), up to 95%, using a third party mortgage insurance company (EMI).  This insurance is applied for through the banks and comes at an additional cost to the actual loan. 

How does the appraisal work?
The bank requires a property to be appraised by a bank-approved appraiser.  The appraiser will check other similar, recently sold, properties in your area and along with other factors determine how much your property is worth.  The banks percentage of financing (LTV) is based on the lower of the purchase price OR appraised value.  If you require a high loan to value and do not have additional funds if the property is appraised lower than the purchase price, it is a good idea to do the appraisal before you purchase.  Any additions or building done without a permit will not be included in the assessor’s price.  The cost of an appraisal is usually around 600nis, however, some banks will require a more detailed and costly report.

What are some of the costs involved in taking out a mortgage ?
Processing or Origination fee:  This is a fee paid to the bank and is between .25% and .5% of the loan amount depending on the bank.  There is room for negotiation on this fee.
Appraisal:  The cost of an appraisal is usually around 600nis, however, some banks will require a more detailed and costly report.
Monthly Life insurance and Property insurance:  In most cases these are both mandatory for all borrowers.  Costs vary based on price of property, age and health of borrowers. Please consult with an insurance agent for specific costs.
Other Costs: Mortgage registration fee - 155nis, Power of attorney – 240nis 
Please note that the above figures are only a guide, based on average costs incurred in the past. Exact costs will vary depending on the lending institution and along with other factors in the mortgage process.

How do I qualify for a mortgage for New Olim ?
Government mortgages provide Olim who are not homeowners with a limited, low interest mortgage.  The government mortgage is a shekel loan linked to the cost of living index.  Rates are usually 4%.  The loan can be paid back at any point without penalty.

To qualify the person or family must be:

• Non-homeowners - "A person who isn't and hasn't been registered as owner or part owner of a property"
• Aged over 21
• Temporary Residents and Tourists are not eligible for assistance

For Olim and eligible Israelis, the entitlement is calculated on the basis of age, number of siblings, number of children, years of marriage and army service. The eligible person (or couple) receives points for each of these factors, the total sum being calculated as a result of these points.

It is possible to estimate  the amount of government loan you qualify for by clicking here (Hebrew)      http://www.fibi-mashkanta.co.il/applications/newCalculator/mainCalc.aspm   or by visiting a local bank.

In Conclusion
Understanding the terms and conditions of each loan product offered by Israeli banks is essential to ensure that you are getting the option that best suits your financial needs.  Small differences in rates and terms can have a comparatively large effect on the overall cost of borrowing.   It is best to compare a few loan options and negotiate with the banks on the rates and terms before deciding on any loan.  Also keep in mind that obtaining a mortgage in Israel can be a fairly involved process with a number of steps in uncharted territory.  Try to get as much information as possible from your bank, and speak with friends and co workers about their experiences.  Remember not all banks were created equal, and definitely no one single loan is suitable for every individual.

Mortgage Israel Ltd is a consulting firm specializing in securing residential and commercial loans primarily for the Anglo market in Israel.
Further information is available at www.mortgageisrael.com , or by contacting our office at 02-532-2937 or by email at info@mortageisrael.com .

Mortgage Israel Ltd is a consulting firm specializing in securing commercial and residential loans primarily for the Anglo market in Israel.

Further information is available at www.mortgageisrael.com , or feel free to contact a Mortgage Israel consultant at 02-532-2937 or by email at info@mortageisrael.com.