The abolition of the mortgage frame limit came into effect.
Will customers benefit from the change?
We do not worry about banks
There will be banks that will not approve for every applicant the maximum in prime
Photography:
Envato Elements
Produced by the Department of Special Supplements
Is it time for prime time?
Everything you need to know about removing the prime limit on the mortgage.
There are many routes that can make up the mortgage, but one of the most common is the prime route.
This is a track in which the interest rate automatically changes 8 times a year (as of 2020), in accordance with changes in the interest rate in the economy determined by the Bank of Israel.
The prime track is not linked to the consumer price index, which often has a negative effect on the mortgage debt balance.
The interest rate on this track is low nowadays, and there are no penalties for early repayment or mortgage turnover.
Its disadvantage lies in the fact that the monthly repayment can change frequently, and this must be taken into account and prepared for.
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Since 2011 this route has been limited to one-third of the mortgage composition.
There was concern at the time that interest rates would rise and make it difficult for households to meet their monthly obligation.
In practice the risk has not materialized, and in the last decade the public has lost billions, as many have opted for medium-term variable interest rate tracks (variable every 5 years), where interest rates are higher.
At the time the limit was imposed, the prime interest rate was about 4.5%.
Today the prime interest rate is only 1.6%.
The Bank of Israel's decision to remove the restriction and allow the public to choose the prime route up to two-thirds of the mortgage composition was born out of an assessment that the risk of interest rate hikes, which has not materialized so far, is unlikely to materialize in the coming years.
This decision may change the way the mortgage routes are chosen as they have been in the last decade,
After dozens of discussions in the professional committee of the Association of Mortgage Advisers, hours of discussions with senior officials of the banking system and the Bank of Israel, the general public was warned that the promised change, the dramatic reduction in mortgage prices, would not reach consumers.
Keep in mind that in the prime track the risk is greater, and is the least profitable for banks.
Early to open champagne
At the end of the day, is it good or bad for the consumer?
We were assisted by Shai Perlman, an economist and mortgage advisor, CEO and co-owner of Pearl Mortgage Advising, a member of the board of the Israel Mortgage Advisors Association.
Is there a reason to party?
Although we did not open the champagne yesterday, it is still a happy announcement.
Any regulation that is lowered encourages competition.
After a record year in the mortgage market (the official number has not yet been released), I anticipate that the coming year will continue to be with high demand.
The low interest rate that will remain in the near future, the reduction in the level of tax for real estate investors and the lack of a proper government program for young couples, are expected to continue to fuel the real estate market.
The digital revolution that banks are going through following the corona is expected to increase competition between them.
There will be banks that will not approve for every applicant the maximum in prime.
Instead, they will offer new and old tracks of variable interest rates every year or two, which are parallel to the prime track.
The importance of building a mix (the composition of the mortgage routes) will be even more crucial.
Mortgage planning and negotiations will be even more significant after the change, in order to obtain the most affordable mortgage, in terms of risks and interest cost savings.
Who can fit 2/3 in the frame track?
For real estate investors, who invest for a short period to generate a profit from the increase in value, and do not intend to pay the mortgage for a long period.
It is important to emphasize that combining a high component of variable interest rates will increase the risk of changing the monthly repayment in the medium and long term.
For those who take out a long-term mortgage, it is advisable to incorporate a high fixed interest component (these routes are very cheap as of the end of 2020, as they were at a low point in 2015), so that the mortgage remains stable even during periods when the prime starts to rise.
It is important to build a mortgage that will suit the family's ability to withstand changes in the monthly repayment over the life of the mortgage.
I have a mortgage, should I run to the bank to refinance?
there is plenty to discover.
The directive that allows for a mortgage refinance will take effect at the end of February, so for those who are not financially stressed, it is worth waiting for the directive to be implemented in the field, to examine how much savings will actually be as a result of the changes.
It is important to emphasize that even before the change we are in a low interest rate environment, and it may be worthwhile to refinance during this period.
For those who have loans in addition to the mortgage, I mention the significant relief that is expected to end on 31.03.21, to consolidate loans into the mortgage up to 70% of the value of the apartment.
Produced by the Department of Special Supplements
