Israel Mortgage Options
There are many options available to you from the banks here in Israel. Below is a brief summary of the mortgage options available. Each mortgage is suitable to a different type of client, depending on the clients needs. IsraMortgages will identify the best loan for you. Here is a quick summary:
SHEKEL LINKED MORTGAGES
Fixed Interest Rate – This can be taken from between 4 to 30 years. It is linked to the inflation rate in Israel. The interest remains fixed for the term of the loan, the outstanding amount of the loan is adjusted each year depending on the official levels of inflation reported by the Bank of Israel.
Prime Interest Rate – The borrower pays interest based on the official Bank of Israel rate. This is NOT linked to inflation in Israel.
Variable Interest Rate – a variable interest rate is paid. It is linked to inflation in Israel.
How can an interest rate be linked to inflation in Israel? This is probably not something you are used to in the US, UK or any other English speaking country! The best way of explaining this is by way of example.
If 1,000,000 NIS is borrowed over 20 years at a fixed rate of 4%, your monthly payment would be 5,278.36 NIS. By the end of the first year you would have repaid approximately 25,000 NIS. However, if the official inflation rate in Israel over that year was 5% then the amount you now owe for the mortgage is adjusted by 5%, so you would now owe 1,025,850 NIS! Therefore the monthly payment for year 2 would be adjusted accordingly.
This may be an extreme example, but it illustrates the point.
MORTGAGES IN A FOREIGN CURRENCY
There are many reasons to borrow funds in a currency other than Shekels. The main reason would be for people who have an income in a foreign currency.
Generally funds may be borrowed up to 25 years and interest paid is based on the LIBOR (London Inter Bank Offered Rate) plus a premium set by the lending bank.
Recently some banks have introduced a ‘real fixed’ interest to the Israeli market. This means the borrower doesn’t have to worry about the mortgage being adjusted by inflation at the end of every year. However, the interest rate available for this type of mortgage is a lot higher.