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Take out a mortgage? Do not rush to trust the banks - Walla! Of money

2021-11-30T06:42:00.787Z


The Bank of Israel is trying to put things in order and get the banks to act transparently, but borrowers cannot rely on the uniform presentation of the tracks, and certainly not rely on the proposed mix


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Take out a mortgage?

Do not rush to trust the banks

The Bank of Israel is trying to put things in order and get the banks to act transparently, but borrowers cannot rely on the uniform presentation of the tracks, and certainly not on the proposed mix.

Ofer Levin explains

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  • Mortgage

Ofer Levin, guest column

Tuesday, 30 November 2021, 08:35 Updated: 08:36

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About two weeks ago, a new directive came from the Governor of the Bank of Israel's table regarding the mortgage market in Israel. According to the directive, in about six months a new policy will enter into force, according to which the banks will be required to have a uniform format for the approvals in principle that they submit to customers, in order to make it easier for customers to compare the approvals between the banks.



Let's make some order in the intention of the Bank of Israel. When customers apply for a mortgage, the mortgage bank performs an initial check of the customer's terms (mainly financial terms - income and liabilities). After the inspection, the bank provides the customer with a very basic approval in principle. The certificate includes the amount of purchase of the property, the amount of income as provided by the client, the amount of the mortgage approved to the client and the initial monthly repayment amount of the mortgage payment.



Today, most initial approvals from banks typically include between one and three "simple" routes. This calculation creates the initial repayment that the customer is supposed to pay, and as a result the amount of the approved mortgage for the customer.

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The Bank of Israel's main requirement from the banks - reflect the cost of the mortgage over the years.

The Bank of Israel claims (and rightly so) that the approvals in principle presented to customers today by the banks reflect a very momentary reality that is correct at the moment of taking the mortgage.

The same approvals in principle given by the banks do not show the total mortgage repayment over the years, they do not reflect to customers the changes that can occur if there is an increase in the prime interest rate or the variable interest rate in 5 years, and of course all approvals do not reflect the mortgage loan Tracks linked to the Consumer Price Index.



Hence one of the requirements of the Bank of Israel - reflect all the risks and costs of the mortgage (under a uniform framework and guidelines that the Bank of Israel will guide).

Uniform paper for everyone

Another requirement of the Bank of Israel - the same format as the approval in principle and three mixes identical to the approval in principle. As the bank documents for signing a mortgage differ from bank to bank, the approval in principle of each bank is also different from the other, the Bank of Israel requires that the format be the same for all banks - which will make it easier for the customer to understand the document.



At the same time, the Bank of Israel requires the Mortgage Bank to create three identical "stencils" of its mortgage mixes so that it will be easier for customers to make the comparison between the banks on the basis of these stencils.

As I mentioned, the approval in principle includes an initial mortgage mix submitted to the client, this mix usually consists of 1-3 loan tracks - each track can be different depending on its share of the loan amount, track period, linkage style, changes, etc.

In order to make a correct comparison, it is necessary to make a correct comparison between the tracks and in fact to make a comparison of "apples to apples" and therefore the Bank of Israel comes and requires the banks to "identify" the mixes in the same approval.

Good intention.

The execution, as usual, is suspicious.

Governor of the Bank of Israel Prof. Amir Yaron (Photo: Official Website, Bank of Israel Spokeswoman)

Do not fall into the trap of the banks

Ofer Levin (Photo: REALS Financing Solutions)

As I note at every opportunity, the approval in principle is a preliminary approval only. It is built from a casual mix that usually suits the bank and not most customers. Until a year ago, there was a directive from the Bank of Israel in which it was not possible to take more than 1/3 of its mortgage linked to the prime interest rate, no more than 1/3 at a variable interest rate over 5 years and no less than 1/3 at a fixed interest rate. The banks turned the lemon into lemonade and set a standard of third, third and third routes for their customers - "Bank of Israel said", but those who followed this directive understand that you can also take only 20% at a variable interest rate over 5 years and can also take 60% of the fixed interest mortgage. It is index-linked and some is unlinked, etc.



According to the new directive, which is due to enter in about six months, the banks will receive three mixes or stencils from the Bank of Israel, which they will present to customers and tell them "here is the directive of the Bank of Israel", but this is not the case. The stencils may be correct for the basic initial mix - in 80% of cases it is not suitable for anyone (only the bank). Every client and client is entitled to build a mortgage mix that suits him perfectly, short and long routes can be taken, adjacent and unlinked routes and variable and unchanging. This directive may create initial pressure on banks, but it can undoubtedly create unnecessary pressure on customers who think there will soon be a reduction and in practice apartment prices will continue to rise, indices will rise and whoever pays is the consumer - as always.



In all my many years in mortgage lending I have not advised my clients to take the "three thirds" mix of banks.

Always in comparisons over time, a mix built right and tailored to a winning customer.

Today, dozens of mortgage advisers work in the same method - they first build the customer the right mortgage mix for him and then go out to tender the interest rates with the banks.



Ofer Levin is a mortgage expert and owner of Reals - Real Financing Solutions.

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Source: walla

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