When do you start talking about a mortgage?
The issue of searching for an apartment, whether on the open market or through a price per tenant, is exhausting enough, there is no need to prepare for a mortgage before starting to look for a property. The issue of bank interest rates also changes from moment to moment, and one or another bank’s approval in principle for a mortgage is only valid for 12 days, and this after the Bank of Israel has extended the period.
When you start looking for a property and want to understand what you can purchase, you can really check your existing equity, including help from family, education funds that can be realized, etc. For a first mortgage, the bank can provide up to 75 percent financing so that you can calculate the budget for the desired property, whether by fully utilizing your equity (less recommended because there are other expenses associated with the purchase and you also need to leave some money for the ongoing expenses of the house) or by partially utilizing it. It is worth getting approval in principle from one of the banks at the same time as you search for the property, just to feel confident that the banks are with us and that our salaries are sufficient for the loan amount and there are no black elephants blocking our way.
We found the property, now what?
From the moment we found the property and performed all the due diligence checks on the property owner or contractor, the registration in the land registry, and reached the decision to submit an offer on the property, we actually entered the practical path of which the mortgage is an integral part.
This is the stage where we hire a real estate attorney who will charge us a standard fee of 0.5% -0.35% of the cost of the property and will also condition the purchase on receiving a mortgage from the bank so that we do not take any risks if the bank raises difficulties.
Starting the process – there is nothing to fear
At this point, it is recommended to decide whether we are going it alone or using a mortgage advisor. The meaning of going it alone is to understand the issue of building a mix of routes that is tailored to you, which in my opinion is one of the most important things. According to the mix, it is to request offers for interest rates from several banks at the same time and use the best offer to improve conditions with competing banks and in the end go with the best offer without any feelings or sentiments for this or that bank or this or that banker. That is the whole Torah in a big way!
And on a smaller scale, of course, the financing methods must be examined in comparison to the payment terms. If it is a project under construction and the payment terms are based on the progress of construction, or if it is a second-hand apartment where payment is in full and you receive a key at the end!
- For example: Is all equity available today or is there savings or a continuing education fund that will be repaid in the future?
- Was additional money from the family transferred to the account for the purpose of examining the equity?
- Is it worth it for me to take out a bridging loan or a loan from the insurance company for my continuing education fund?
- Do I deserve benefits from the Ministry of Housing?
- Are there other conditions that certain banks give to certain populations?
In short, all of these things and others can significantly affect the quality of the mortgage we take out.
What is a mix and why is it more important than the level of interest rates?
Don’t get me wrong, any reduction in mortgage interest can reduce the total repayment by tens of thousands of shekels and the monthly repayment by hundreds of shekels, but the mix is more important in my opinion because it is a type of financial planning that is correct for the needs of the mortgagee. In Israel, banks allow you to build a cocktail of routes, each route being built from parameters such as a period of years, a type of interest rate, and an initial or fixed interest rate throughout the entire period. Abroad, the issue is simpler and there are no cocktails of routes, at least for foreigners who do not have citizenship.
Without going into complex numbers and concepts, in Israel, interest rates are divided into fixed interest rates and variable interest rates. Fixed interest rates are higher but will not change throughout the entire mortgage term. Variable interest rates can depend on the index, the bank’s prime interest rate, or the mortgage interest rate that will change after 5 or 10 years.
The principle is to try to understand in depth whether our age allows us to grow in terms of income, whether we have relatively safe professions, whether the industry in which we work has a provision for a continuing education fund that is released every 6 years and can pay off part of the mortgage, whether and when the family grows will we be forced to give up part of the income of one of the spouses? Will we be at the peak of our professional flowering in 10-15 years and then it could decline? All of these should be part of our decision whether to build fixed tracks for 25 years or mixed tracks, some of which end after 15 or 20 years, while other tracks can continue even for 30 years. Shortened tracks will significantly ease the repayment amount after 15 or 20 years when we are older and it may be difficult to make a living or find a job after being laid off.
A higher return in the near future will significantly reduce the total return. The type of interest rate in the path also has a high significance? The more the interest rate is subject to changes, the higher the level of risk, for example: the index can rise, interest on mortgages can climb significantly, especially after many years when we all enjoyed very low interest rates on mortgages. On the other hand, a fixed interest rate is more expensive because it neutralizes the risk. So how do we decide what is right for us?
What is a mortgage advisor and should I hire one?
A mortgage advisor is a profession that has gained popularity in recent years, as the real estate market has grown significantly. The industry is still not fully institutionalized and there are many charlatans in the field. However, the industry has an association and a certification certificate, so it is important if you hire an advisor to look for a qualified advisor. The advisor is someone you pay for, and he is supposed to analyze the needs of both spouses and the family and build the right mix of options for you. Not necessarily the cheapest, but one that embodies the risks involved in taking out a mortgage. His job is to maximize the mix for you. The advisor then approaches the banks and his contacts at the banks on your behalf and requests interest rate offers for one or more options that you have agreed on together.
The advisor is obligated to be objective and work for you and not for the bank. A good advisor knows how to get good offers, bargain already at the offer stage and use one offer to leverage another offer. An even better advisor knows how to go from the start to financial institutions that will try to fight to get the case and will be willing to earn less and give better interest rates. Beyond that, there are banks and financial institutions that many of us have not heard of that give mortgage loans for which customers with good salaries are considered preferred customers. There are also all kinds of assistance programs on the market for young couples at very low interest rates. A good advisor should know how to direct you to all the benefits of the banks and the Ministry of Housing in order to maximize the mortgage.
Should you hire a private advisor? That’s up to you. If you feel like you can plan the mix, use various forums for help and find the various benefits, negotiate interest rates, and understand the risks and benefits of a mortgage, you don’t really need an advisor. If you feel like you need someone who understands and can give you added value, then you can definitely use an advisor of your choice.
The banks, the offers and the advisor
To be honest, with all my understanding in the field, I did hire a mortgage advisor who received a high rating on one of the comparison sites. I didn’t know her before. Like most of us, I wasn’t happy to pay a few thousand shekels for advice. It’s annoying and feels especially unjustified that it’s added to the other associated expenses of the apartment.
When I arrived at the banks on my own, I saw that they combined the principle approval stage with a basic mix and “initial” interest rates, claiming that it was only for the purpose of approval. The mix included 3 channels of equal weight from the loan amount, and initial interest rates for approval that would be improved later. I quickly realized that if I changed the mix, the entire approval would have to be done again, and the initial interest rates are a bad starting point from which the improvement, no matter how high, started at a bad point. I first met the consultant I hired a few months ago in a previous deal that didn’t work out, and even then I realized how much I don’t understand the benefits that exist in the market, such as a loan from the insurance company on the account of a continuing education fund instead of releasing the money, about the eligibility of the Ministry of Housing, about a bank that gives 50,000 NIS without interest, and how much her understanding of the field gives me a better starting point. In short, I paid her (not happily) 6,000 NIS + VAT, but I estimate that I earned close to 75,000 NIS in total in my case.
In conclusion
A mortgage is not the most pleasant subject in the world for most of us, but today I understand that it is not that scary either. There is a process that must be gone through. It is important to plan the repayments correctly and know how to bargain well and recognize the benefits in order to get a good deal. In the end, you sign (a lot of signatures and several approvals that need to be brought) and it is over. You see it on the bank statement every month but live in our own apartment. (In my case, for investment). Yes, it is important to note that it is recommended to monitor the amount of the mortgage and the changing interest rates at each stage and see if it can be improved at the exit stations or in the process of turnover. Here too, you must not rest on your laurels.
Feel free to send me questions via Messenger (the blue icon on the bottom left) and I will respond as soon as possible .
*The above does not constitute advice for taking out a mortgage.
Further reading: The mortgage – a general explanation from the book Chacham on the Strong
