I had the good fortune to discuss mortgage issues with former Bergenfield resident Dovid Preil, who is a senior mortgage broker with First Israel Mortgages, which specializes in serving the Anglo community.
GB: What issues should my clients be aware of when shopping for a mortgage in Israel?
DP: Penalties. Allow me to illustrate with a story about a mainstay in my shul named Saba Maimon. Saba Maimon has dark wrinkled skin, a big kippah, and an even bigger smile. He comes and goes on a schedule known only to him. All of the children flock to him; sometimes he has candies and sometimes he has jokes, but he always has a smile.
One day before davening, Saba Maimon approached me and asked in his cheerful, raspy voice, “You work in mortgages?” I responded in the positive. He said, “I walked into the bank with a bag full of money and told them, ‘Take it! I am paying off my mortgage,’ and they said to me ‘Okay, but you have to pay us an extra 120,000 shekel as a prepayment penalty.’” He concluded, “I don’t understand, I have to pay them money to pay them money?”
GB: Is Saba Maimon’s story unique?
DP: Unfortunately, Saba Maimon’s penalty is the reality for all too many people looking to pay off, pay down, or refinance their mortgages. Unlike in the U.S., where one can pay off whenever he wants, many mortgage products here carry the risk of an early payment penalty. The logic is as follows: just like the bank committed to lend 1,000,000 NIS for 30 years at a certain set rate, the borrower has committed to pay the interest on this loan for 30 years. Therefore, if you want to pay off your entire loan, the bank calculates the interest that would have been owed over the rest of the term and demands it up front.
GB: What can be done to minimize the risk and impact of these penalties?
DP: Unlike in the U.S., an Israeli mortgage can be comprised of multiple parts, or maslulim. Variable rate mortgage products don’t carry the risk of penalties, so by including variable rate products, one can guarantee that there will not be any penalties on these maslulim. Additionally, shorter term loans carry reduced penalties. Both of these solutions come with tradeoffs: variable rate products expose one to rising interest rates and shorter term loans will have higher monthly payments. The most surefire way to lower and even eliminate penalties is to secure a low interest rate on the fixed portions of one’s loan. Even if interest rates drop, if one is paying a low enough rate, there will not be any penalty when paying off the loan.
GB: And that’s where you come in.
DP: Yes. The best way to guarantee the right mortgage for your needs at the lowest rates is to engage the services of a professional who understands the system and has strong relationships with many lending institutions.
GB: In what other ways do Israeli mortgages differ from U.S. mortgages?
DP: Israeli mortgages often carry a minimum early payment amount of 10%, meaning someone owing 1,500,000 NIS would not be allowed to pay off less than 150,000 NIS. This precludes the possibility of slipping an extra 100 NIS into the mortgage payment when you have had a good month.
GB: Last thoughts?
DP: Despite the challenges we’ve discussed, there has never been a better time to take out an Israeli mortgage. Interest rates are at historic lows, with variable rates on U.S. dollar-linked products around 2%–and lower if linked to the shekel–and fixed rates on U.S. dollar-linked products at around 4.3%. If you were considering purchasing property in Israel, now would be a very good time.
Dovid Preil can be reached at [email protected]
Gedaliah Borvick is the founder of My Israel Home (www.myisraelhome.com), a real estate agency focused on helping people from abroad buy and sell homes in Israel. To sign up for his monthly market updates, contact him at [email protected]
By Gedaliah Borvick