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The reform of the tracks in mortgages, everything you need to know

The mortgage track reform will come into effect this month.

What it means?

What should you know before starting the procedure and which mortgage route suits you best?

We turned to the expert and compiled for you everything that those who are planning to buy an apartment must know

Sharon Ben Yehuda, deputy manager of the mortgage branch in Mizrachi-Tefahot

22/08/2022

Monday, August 22, 2022, 2:00 p.m. Updated: Thursday, August 25, 2022, 10:33 a.m.

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At the end of the month (31.8) the reform of the mortgage market routes will enter the period.

But what does it even mean, who is it good for - and most importantly: what do you need to know before buying a new apartment?

for answers on all of these

.

Breaking your head trying to crack the changes in the mortgage market?

We will try to arrange for you (Photo: ShutterStock)

When will the mortgage reform come into effect and what is its purpose?

The new reform in the field of mortgages - the reform of the routes, will come into effect on 31.8.22, when the Bank of Israel defined several key goals for it, including:

Transparency and uniformity in information that will allow the customer the ability to compare banks.

Simplicity and convenience for the customer in carrying out the mortgage process.

Shortening the time for giving the notification of approval in principle.

Real Estate Financing Investment Fund (Photo: ShutterStock)

What will the banks' mortgage proposal look like from now on: how many routes will it include and what additional information will it contain?

The basic approval form will be issued uniformly by all banks and will include three uniform baskets determined by the Bank of Israel. In addition, the banks can offer a fourth basket, which will be adapted to the specific customer's data and his varied needs.

The structure of the three uniform baskets is predetermined:

Basket 1 - 100% at a non-linked fixed interest rate.

Basket 2 - 50% at a non-linked fixed interest rate and 50% at a prime interest rate.

Basket 3 - 33.33% at a non-linked fixed interest rate, 33.33% at a prime interest rate and 33.33% at a variable (every 5 years) linked interest rate.

Additional basket - 4 - customized for customer data.

In addition, the basic approval form will include various comparative data, including the first full monthly repayment, the highest monthly repayment during the loan period, the total amount of payments, etc. All the data will be reflected on the basis of the Bank of Israel's forecasts for inflation and interest until the end of the term the loan.

Receiving an approval in principle in advance will facilitate the comparison between the different routes and the different offers we will receive from the banks (Photo: ShutterStock)

How will the reform affect me as a borrower?

How much will it improve my situation and allow me to make a better comparison between different offers and the ability to reach an affordable offer for me?

As a customer interested in taking out a mortgage, the reform will allow you to receive identical data from the various banks, both in the structure of the mortgage mix and in the accompanying data, so that you can compare the offers in an easy and convenient way.

In addition to this, it is of great importance that the approval in principle also include a personalized fourth basket, built by an expert banker, who gives you a precise answer, so that the loan mix will suit your needs in the present and in the future.

In this way, you will also gain the ability to compare banks and also receive A response and a 'tailored suit' for you personally.

The uniform routes that the banks will be obliged to offer are designed to make it easier for borrowers to compare the various offers (Photo: ShutterStock)

The banks are obliged to offer 3 uniform routes, but they are allowed to offer an additional route or routes.

Why do you even need another track?

Won't this cause confusion for customers?

The uniform tracks make it possible to compare banks, but they are limited to the structure that the Bank of Israel established in the instruction, including defined periods of 10 / 15 / 20 / 25 / 30 years, from which the customer can choose the same period for all the baskets.

The routes are limited in the way that they can adapt to the personal needs of each and every customer, because once the period is defined in advance, it is not possible to optimally match the period of the routes to the unique characteristics of each product (for example: it will not be possible, for example, to offer a shortening of a period in a route with a fixed interest rate and an extension of a period in the prime route).

The additional fourth basket is designed to make the adjustment to the customer's characteristics, both in relation to his personal needs and in the ability to produce variation between the different tracks, in their rate of the total loan and the repayment period in each track, according to the customer's personal profile.

The customized mix also allows full or partial deferment of payments for different periods, for customers who are required for this solution (for example in a situation where the customers have purchased an apartment, but are forced to continue paying rent until their new apartment is completed and transferred to their possession).

Remember: it is important that the return at the beginning of the period is not the maximum but the optimal (photo: image processing, shutterstock)

In the last year we have witnessed a significant increase in interest rates in the economy, with the Bank of Israel estimating that it will continue to rise.

How can I plan her mortgage in the best way to make sure that I will be able to meet the repayments without problems and surprises?

A mortgage is the largest and most significant loan that a household will take during its lifetime, therefore it is of great importance to customize the loan mix, so that it is possible to meet the monthly repayment both now and in the distant future.

Therefore, it is important that the construction of the mortgage structure be carried out with the assistance of a professional who is knowledgeable in the field of mortgages.

We offer the expert bankers of Tefahot, but of course the customer can also use a mortgage consultant, provided that at the end of the process, the loan mix will accurately reflect the customer's personal needs and unique characteristics.

The ability to meet the monthly repayment comfortably is one of the key elements in the household's ability to meet the loan until the end.

It should be remembered that this is a loan for a very long period (up to 30 years), so it is very important that the monthly repayment at the beginning is not the maximum repayment that the couple can afford.

This is to leave them a 'breathing space' for scenarios in which the interest rate in the economy will rise, and with it the monthly repayment on the mortgage.

Therefore, ask yourself - what is the maximum monthly repayment that you can afford and live with comfortably and share with the banker, so that they will match you with a personal mix, with a repayment adapted to your abilities, throughout the life of the loan.

Inflation is at a high for many years and the rate is on the rise.

Does this affect the choice of the type of mortgage? (Photo: ShutterStock)

Inflation is at a high for many, many years.

The interest rate is on the rise.

What is the recommended loan mix today?

The Mishkanah routes have different characteristics with advantages and disadvantages, from the personal point of view of each customer.

Some allow more stability in the monthly repayment and others allow flexibility in disposal;

Some are affected by index changes and others are affected by interest rate changes in the economy.

The various loan routes differ from each other in volatility versus stability of the interest rate, on the one hand, and flexibility versus rigidity in early repayment, on the other hand.

When building a neighborhood mix, the goal is to find the right balance between the different routes, to properly utilize the advantages of each route and also to spread and hedge risks.

There is no one loan mix recommended for all customers.

Each mortgage loan is personally tailored to the customer according to his characteristics and needs.

Therefore, when choosing a neighborhood mix, which consists of different routes, it is important to adjust the characteristics of the selected routes to your personal needs and to create a correct balance between the different routes.

Author of the guide: Sharon Ben Yehuda, deputy manager of the mortgage branch in Mizrachi-Tefahot (photo: Liat Kutner)

It is commonly thought that the most significant comparison parameter between mortgage offers from different banks is the loan interest rate.

Is this really the only figure that needs to be checked before signing a bank loan?

What else to pay attention to besides the interest rate?

The loan interest rate is certainly an important factor, but it should be remembered that this is only part of the variety of considerations that must be taken into account when building a loan mix.

In the end, what determines the quality of life of the household throughout the life of the loan is its ability to meet all current expenses and maintain a routine life, without the monthly repayment becoming unbearable and one that comes at the expense of other needs.

Therefore, we must build a mix that will ensure a monthly return that can be tolerably 'lived alongside', even in scenarios of rising prices as a result of rising interest rates.

Other important parameters are the total cumulative payment you will return to the bank over the loan period, early repayment options and more.

And of course, when examining your monthly repayment capacity, it is important not to forget additional payments such as insurance payments (life and property).

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• mortgage

• mortgage

• Mizrahi Bank

• reform