Did you take out a mortgage?

Get ready to part with tens of thousands of additional shekels

The rise in interest rates in the economy affects borrowers, who in most tracks will pay a small monthly supplement each month.

The problem: in the cumulative route it can even reach six digits

Karin Armel, Guest Column

06/07/2022

Wednesday, 06 July 2022, 10:54

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In the video: The governor announces the decision to raise interest rates in the economy (Photo: GPO)

This week, the Bank of Israel raised the interest rate by half a percent, and now the interest rate in the economy stands at 1.25%.

When it comes to mortgages, it is important to understand that the upward trend in interest rates began as early as March this year.

This increase was actually felt in most mortgage tracks (those who signed up ahead of time on the unlinked fixed interest rate track, for example, were not harmed), and its peak came in mid-April, when the Governor of the Bank of Israel issued a statement that interest rates would rise by 0.25 percent.

It turned out that within three months the interest rate in the economy rose by 1.15 percent and reaches a level of 1.25% for the first time in nine years.

And here, of course, comes the question of how it affects the pockets of borrowers, or rather - how much.

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Now it is less noticeable, but in the aggregate it is a piece of fine (Photo: ShutterStock)

It is important to understand that any change in interest rates directly and immediately affects the prime interest rate, the same interest rate that we pay on bank loans, car loans and of course on our mortgage.

When the interest rate in the economy goes up, the prime interest rate automatically goes up accordingly, so you must have noticed that your monthly repayment has gone up in the last few months.

For example, if your mortgage portfolio has NIS 500,000 in a prime linked track for a period of 25 years, then your monthly repayment has increased by NIS 150 within two months, and now there is another sharp increase, which increases the monthly repayment by another NIS 120.

That is, in a total period of 4 months, the monthly repayment increased to close to NIS 300, a not insignificant amount.

The problem is it does not end here.

At least for now, it appears that the economy's interest rate is still expected to rise later this year, with the Bank of Israel estimating a further increase of another 1.5%.

This will already increase the monthly repayment amount by approximately NIS 400, and if you calculate this increase over the life of the mortgage, which is spread over 25 years, then the bottom line is an increase of more than NIS 100,000 in the final payment to the bank.

How to prepare for fluctuations in the mortgage?

Karin Armel (right) and Daniel Nachmias, DNA Mortgages (Photo: Sharon Levin)

Anyone taking out a mortgage these days should recalculate a route and carefully plan the portfolio and the composition of the routes, because as we mentioned, the changes in monthly repayments are due not only to rising interest rates, but to volatile mortgage routes, whether due to inflationary changes or interest rates.

Thanks to economic planning, it is possible to make estimates of expected changes, and deduce from this a convenient initial monthly repayment, which, as stated, will also increase in the coming months.

Those who are currently in the process of searching for a property must understand that the ability to repay is impaired as a result of this upward trend, while apartment prices show no signs of declining.

This means that our purchasing power is small, or in simple words - we can get less funding.

This is the place to point out another interesting point: Anyone who currently has a mortgage is significantly hurt by the monthly repayment, and it is possible that the expected additional interest rate hikes will cause a wave of mortgage cycles that will seek to lower the repayment.

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