mortgage

Rules of the mortgage "game"

Amortization: A few years ago, the supervisor of banking decided that mortgages can be amortized up to a maximum of 30 years.
LTV: (Loan to Value) the percentage of the value of the property that borrowers choose to finance via a mortgage.
First time homebuyers: In other words, homebuyers who do not yet own a property, can receive up to 75% financing (An exception being purchasers of apartments through the Mechir Lamishtaken government subsidy program whom the bank of Israel allows to take mortgages with higher LTVs under certain circumstances). Applies only to Israeli residents.
Home upscalers: Buyers who are selling an existing property to purchase a new one may receive up to 70% financing.
Investors: Anyone with one or more properties intending to purchase an additional property may receive up to 50% financing.
All purpose mortgage borrowers who already have a property and intend to borrow against the existing property may receive up to 50% financing.
The LTV is calculated based on the value of the property which is subject to interpretation. For example, if you purchased a second hand apartment, the value of the property will be the lower of the following: The purchase price in the contract, or the appraisal you receive. For example, if you purchase an apartment for 1M NIS, but it is appraised at 900K NIS, the calculation of the LTV will be based on the appraisal and a given amount of a loan will give a higher LTV than if the appraisal had been for the full value in the contract, this will also require that the borrower invest more of their own money to finance the purchase. In general, these are the accepted levels of financing:
Up to 45% LTV-low LTV
Up to 60% LTV-medium LTV
Above 60% LTV-high LTV
Makeup of the mortgage loan:
The bank of Israel has also set certain limitation on the makeup of the mortgage loan that borrowers can take in terms of the types of loans. These are the main limitations:
At least one third of the loan must be a fixed interest loan. Fixed interest is considered the safest interest option and may by indexed or not. The unindexed version is considered the safest of the two, as it creates certainty regarding the mortgage payments and the overall amount to be paid on the loan. Having said that, the bank makes allowances for inflation in the rates it charges and for this reason, the unindexed rate is higher than the indexed rate.
No more than 2/3 of the loan may be at variable interest. This portion of the loan may be taken either entirely at variable interest linked to the prime rate, or it may be split into 2 parts one of which has variable interest that adjusts every 5 years or longer. Either way, the total exposure of the borrower to variable interest may not exceed 2/3 of the loan.
Coverage ratio: The ratio between your available net income and the monthly mortgage payment is one of the key determining factors affecting the terms of the mortgage you will receive. Available net income is your net income less your recurring expenses (loan payments, alimony payments, and any other recurring payments expected to last more than 18 months). From a regulatory standpoint, the maximum mortgage payments cannot exceed 50% of your available net income, however, most banks will offer you a mortgage whose monthly payment does not exceed 1/3 of your available net income to make sure that you do not have difficulties making the payments.
So how large a mortgage can you receive? Take a look in our mortgage calculator>

Types of mortgage loans at Discount Bank:
Fixed rate mortgage
Fixed rate mortgages are considered the safest type of mortgage loan, therefore explaining the reason that the Bank of Israel insists on making them at least a 1/3 of every mortgage. Discount offers 2 types of fixed interest mortgages which clients can choose from or combine as they wish:
Fixed rate unindexed mortgage
A fixed rate unindexed mortgage loan is considered the safest type of mortgage loan, since this type of loan is unaffected by inflation or any type of outside influence. This type of loan allows the client to know the exact amount to be repaid during the mortgage's lifetime.
Disadvantage: This type of loan is usually more expensive compared to indexed or variable interest loans because it takes into account inflationary risks that may or may not materialize.
Amortization: 1-30 years
Who does it best fit? Clients who need certainty and stability and who want to know up front how much their monthly mortgage payments will be and to neutralize inflationary and interest rate change risks that may happen during the lifetime of the mortgage loan.
Fixed rate indexed mortgage
The indexed fixed rate mortgage offers the advantage of the stability and certainty of fixed interest but at a generally lower interest rate than unindexed fixed rate loans.
Disadvantage: Inflation during the lifetime of the loan will increase the monthly payments of the mortgage as well us the amount of the unpaid principal.
Amortization: 1-30 years
Who does it best fit? Clients who want to enjoy the stability of fixed rates but at a rate substantially lower than unindexed fixed rate loans. Please note, that the monthly mortgage payments are expected to increase over time at the pace of inflation.
Variable rate mortgage loans:
Mortgage loan fixed to prime:
Variable rate mortgage loans fixed to prime are based on the prime interest rate which is the Bank of Israel rate + 1.5%. These loans are not indexed to inflation.
Since no one knows what interest rates will be in the future, this type of loan is considered risky compared to other types of loans and that is the reason that the Bank of Israel has limited it to a maximum of 2/3 of the mortgage loan.
On the other hand, prime rate loans offer maximum flexibility as this type of loan can be repaid at any time without incurring early repayment charges other than a small processing fee and possibly a lack of advanced notice charge if repaid with less than 30 days notice.
Disadvantage: Interest rate increases during the lifetime of the mortgage will immediately increase the monthly mortgage payment.
Amortization: 1-30 years
Who does it best fit? Clients looking to combine a generally lower interest rate as compared to other types of loans, clients who require flexibility, and clients who believe they may repay the mortgage early.
5 year adjusting fixed to float mortgage loan
This type of loan combines the flexibility of variable rate loans with the stability of fixed rate loans. In this type of loan, the principal is not indexed to inflation making it a safer option than indexed loans. The interest rate in this type of loan is based on the "base rate" of unindexed government bonds with a duration of 5 years advertised by the Bank of Israel.
Disadvantage? Interest rate increases around the time the interest resets will increase the monthly payments for the next period.
Amortization: 5-30 years
Who does it best fit? Clients looking to combine stability with flexibility. In this type of loan, the monthly payments stay fixed for the first 5 years, and once reset, remain fixed at the new level for the next 5 years and so on. When the interest resets, the loan can be repaid early without early redemption fees.
5 year adjusting fixed to float indexed mortgage loan
In this type of mortgage loan, the interest and principal are indexed to inflation. The interest on the loan is fixed to indexed government bonds with a 5 year duration, and resets every 5 years. This type of loan generally has lower interest rates than its equivalent unindexed loan, but increases in the inflation rate cause an increase in the monthly payments and principal.
Disadvantage: Increases in inflation will cause the monthly payment to rise over time, and if interest rates rise close to the reset date of the loan this can increase the interest rate on the loan for the next 5 years.
Duration: 5-30 years
Who does it best fit? Clients looking for stability, flexibility, and a low interest rate for the first 5 years of the loan. This loan can be paid off without early redemption fees when the interest rate resets.
Short term mortgages: Sometimes you need a mortgage for just a little while. For example when you're waiting for a new apartment to be completed, while waiting to sell an old apartment, until you receive the proceeds of the sale, or until a deposit matures.
Bridging loans
A bridge loan is used to bridge a short term gap between an expense, for example payment for a new apartment, and income, for example from the sale of your old apartment. Bridging loans can be taken via any of the mortgage loans listed above. And even by combining a few of them, as long as they conform to the limitations set by the Bank of Israel.
Amortization: 1-5 years
Who does it fit? Clients who need to bridge a short term gap between expenses and future income.
Grace
Grace enables a short term deferral of principal payments for a fixed term. During the grace period the bank will only charge interest payments on the loan but no principal will be repaid. This is called a partial grace.
Amortization/Grace period: up to 3 years
Who does it best fit? Clients who require a period of smaller mortgage payments, for example clients purchasing a new apartment while renting until the contractor completes the project.

What is "Approval in Principal" of a mortgage?
Approval in principal allows us to know how large a mortgage the bank can approve based on the information we provide before filling out all of the paperwork.
How is an approval in principal provided?
Approval in principal sets out the conditions of the mortgage that the bank is offering to us, based on the information we provided the bank before filling out the paperwork and providing documentation. This allows us to know what the bank is willing to approve in principal, before starting the mad dash to get all of the paperwork.
An approval in principal consist of 3 stages:
Stage 1- answer question about 3 topics:
-who is the borrower-employment, status, income and expenses
-what is being financed-how much capital does the client have, how much is required to complete the purchase? Or in other words, what is the monthly payment you want, and what types of loans would suit you best?
-what are you purchasing-the type of property, location, value, and use (eg. Are you building on your own or is this an investment?)
Stage 2-Got it, we're checking…
Your request will be sent to a mortgage expert who will process it and make a decision whether based on the information you provided, the bank can approve the request, and if so, under what conditions.
Stage 3-Receipt of the approval in principal and conditions
By the way, if conditions have changed, the request can be resubmitted.
Where do we go from here?
The next stage is to bring the documents listed in the approval in principal.
While you complete the documentation, we will tailor a mortgage to you needs at attractive rates.
Please note that as the mortgage moves forward, you will be required to bring additional documents such as an appraisal , life insurance, and property insurance, mortgage deeds, and notarized documents. Your mortgage advisor will tell you what's needed, depending on the kind of loan you're taking.
The final stage is sending your file off for final approval and then to wait for the notice that everything is approved and the funds have been released!