The Bank of Israel gives clear directives on how to take out a mortgage and the conditions that borrowers must meet.
In 2011, a directive was published limiting the variable interest rate to 33% (one-third) of the mortgage provided by the bank to the borrower.
This limitation applies to all housing loans, regardless of the variable rate plan chosen, in which the interest rate may change in less than five years.
This directive is intended to reduce the risk that the variable interest rate will increase and significantly increase the monthly mortgage payments, in a way that will affect borrowers’ ability to repay the loans.
In 2012, a directive was published whereby a banking company cannot approve a housing loan at a financing rate exceeding:
- Mortgage for the purchase of a single apartment – up to 75%.
- Mortgage for the purchase of an alternative housing (purchase of a new apartment and simultaneous sale of the previous apartment) – up to 70%.
- Mortgage to purchase an apartment as an investment – up to 50%.
In 2013, new guidelines were published limiting the following:
- The monthly mortgage repayment rate cannot exceed 50% of the borrower’s net income. In practice, the monthly repayment rate is 40% of the net income.
- The part of the loan at variable interest rate – A banking company shall not approve a housing loan in which the part of the housing loan with variable interest exceeds 66.7% (two thirds). This directive is added to the previous directive of 2011.
- Duration of the loan – A banking company shall not provide a housing loan for a period exceeding 30 years.
These guidelines/directives are intended to reduce risk so that borrowers do not take mortgages that they will not be able to repay.
If you have any questions, contact us now for mortgage advices and details about your options.
Itay Mardix – Financial and Mortgage Advisor.
Phone number – 052-6007476
Office – 074-7419441
You can also visit us on our facebook page
Facebook.com/MardixFinance
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