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Taking out a mortgage in a variable interest rate environment: it's possible - voila! money

2023-05-16T08:40:11.988Z

Highlights: According to Bank of Israel data, new mortgages taken out by the public in April were at the lowest volume recorded since October 2019. The increase in the interest rate (as of April 2023: 4.5%) increases the monthly mortgage repayment and raises concerns among potential buyers. "I believe that the current situation is a kind of standby and that demand will not wane," says Ariella Randlstein, director of the mortgage department at Bank Hapoalim. "People need to live somewhere, and even these challenging conditions don't change that"


According to Bank of Israel data, new mortgages taken out by the public in April were at the lowest volume recorded since October 2019


Rising interest rates make monthly repayments more expensive and raise concerns among potential buyers (Photo: ShutterStock)

A few months after the end of 2022, which was a record year for taking out mortgages, many Israelis who are currently interested in purchasing an apartment are afraid to take out a mortgage. The rising interest rate in the economy and the general uncertainty have led to a significant downshift in real estate transactions in Israel. The increase in the interest rate (as of April 2023: 4.5%) increases the monthly mortgage repayment and raises concerns among potential buyers about repayment payments that will increase and thus harm their disposable income.

"If in 2021 we saw the largest jump in the number of transactions and in 2022 the peak of mortgages taken out, at the beginning of 2023 we see a very weak quarter in the real estate market, mainly in terms of transaction volume," says Ariella Randlstein, director of the mortgage department at Bank Hapoalim. "It should be noted that the volume of mortgages granted in 2022 was not significantly higher than in 2021. What was new in 2022 was the decision to raise the interest rate, which was already reflected in the market in June, July and August. At the time, there was a decline in the volume of transactions, and hence also a decline in the number of mortgages taken. However, despite the fact that the market is weak today - demand has not disappeared. People need to live somewhere, and even these challenging conditions don't change that. Right now, those who can't afford to take out a mortgage are simply waiting for lack of choice. Many of those who have the ability to repay are also waiting – out of a desire to understand what is happening in the market and where things are going. Customers are exploring all options and even hoping that prices will come down. I believe that the current situation is a kind of standby and that demand will not wane."

"For many years, Bank Hapoalim has been granting a month off from mortgage payments every year" (Photo: ShutterStock)

A mix of loan tracks that can be suitable for the period Randelstein says that Bank Hapoalim has made preparations to deal with the new situation, looks at customers who already have a mortgage and is taking steps that will expand the

toolbox at their disposal. When the Bank studied its forecasts in January and characterized mortgage-taking populations that could be harmed by the new situation, it absorbed that month's interest rate increase for them.

To what extent does rising interest pose a risk to those who are debating whether to take out a mortgage and how can they deal with this risk?

"In order to answer this question, one must first understand how a mortgage is composed. At least a third of its amount is required by the Bank of Israel to be taken at a fixed interest rate, with the customer having the right to choose whether or not to index the fund to the consumer price index. The increase in the interest rate does not affect this track, because throughout the life of the loan the interest rate does not change (except for indexation to the index, if any).

The balance of the mortgage is already up to the client, who can build a customized loan mix. Thus, for example, he can build the entire balance of the loan at a fixed rate that does not change - and thus not be exposed to changes in the prime interest rate. Alternatively, he can choose a number of variable tracks, such as a variable in the prime track, where there is no indexation to the consumer price index and the interest rate on this loan changes with each change in the prime interest rate in the economy. In such a case, if the interest rate in the economy increases, the monthly repayment will rise accordingly, and if it decreases, the monthly repayment will decline and the customer will benefit from this decline."

What flexible tracks can Bank Hapoalim provide in today's challenging mortgage environment?

In light of the current situation and customers' need for tracks that allow flexibility and changes, Bank Hapoalim has added two new products to the basket of plans, changing every 3 years and changing every 10 years, in addition to changing every 5 years that already exists. These routes allow for short- and long-term flexibility.

As part of the consultation and clarification of needs with the clients, the consultant receives information regarding solvency, expected changes and other things that are taken into account in order to build the most suitable mix for the client.

One month off: "Bank Hapoalim has for many years maintained a month off program that allows its customers one month off from paying a mortgage once a year. Depending on the terms of the program, borrowers can defer mortgage payments once a calendar year. The interest for that month will be added to the loan balance and calculated relative to the new balance, and the loan will be extended by one month and redeployed.

Is it possible to change the mortgage route after it has been selected and the monthly payments have already begun?

"Absolutely. This move is called a 'mortgage refinancing' and customers can take it at any time. They can replace an entire track, part of the track or the entire mortgage structure. As part of the refinancing, the existing mortgage is repaid, in whole or in part, by taking out a new mortgage with new terms. In addition, in recent months, Bank Hapoalim has made it possible to make a second level mortgage—that is, customers of all banks can examine refinancing at Bank Hapoalim some of the mortgage loan tracks they have at another bank, without making early repayment of the mortgage tracks that are at lower interest rates. Thus, for example, a customer with a mortgage of NIS 1 million who wishes to refinance half a million NIS from it with us will not be limited in transferring the entire mortgage from one bank to another and will not have to change the terms of the part he does not wish to refinance."

Finally, a few tips from Ariella Randlestein

● It is very important to build the mortgage in a way that suits the borrowers' lifestyle.

● It is recommended to adjust routes for expected early repayments of the mortgage in order to avoid early repayment fees.

● Don't be tempted by a higher monthly refund than can be met. It's better to leave a safety zone and pay extra money you've managed to accumulate on the go.

Are you still unsure and afraid of taking out a mortgage in the current situation? Bank Hapoalim will be happy to provide you with advice, hear your requests and explain Find out about the possible changes and the range of mortgage products available. "At Bank Hapoalim, it is to adjust the mortgage in a rising interest rate environment while still providing flexibility to our customers and responding in real time to the situation and their needs," concludes Randlestein.

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Disclaimer: Failure to repay the loan may result in delinquent interest charges and execution proceedings. The foregoing does not constitute an offer to extend credit. Obtaining a loan for housing and/or services subject to the approval of the Bank, its terms and any law.

The above is only general information and explanations in accordance with the law and the rules known at the time they were written, and does not constitute advice tailored to the client and his personal needs.

In cooperation with Bank Hapoalim

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  • Bank Hapoalim
  • Mortgage

Source: walla

All business articles on 2023-05-16

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