After the sharp jump in interest rates - the complete guide to taking out a mortgage Israel today

Exactly three months ago, Bank of Israel Governor Prof. Amir Yaron said in an interview with "Israel Hayom" that the interest rate of 1.5% in the first quarter of 2023 "is still a correct interest rate environment".

Today, the interest rate in the economy is already at 2%, and it is estimated that it will continue to rise.

In the capital market, three more consecutive increases are expected, of 0.5% each time, until it reaches a level of 3.5% this coming January.

The forecast of the research division of the Bank of Israel is admittedly more conservative and speaks of an interest rate of 3%-2.75% at the peak, but in any case, this is an aggressive interest rate hike process, which presents many households with a difficult dilemma of what to do with the mortgage burden that keeps increasing from month to month, and more At the height of the wave of price increases, and during the holiday months, when the expenses of households with children increase significantly.

Construction in Be'er Sheva.

The mortgage takers will pay more, photo: Dodo Grinsfein

We will also note that at the beginning of the month the electricity tariff also increased by 8.6%, and the controlled milk prices also increased by about 5%.

Unlike the rest of the household expenses, the housing expense is not flexible and is considered the heaviest expense of most households.

So what do you do in the environment of rising interest rates when the mortgage repayment "suffocates"?

We were helped by Yoni Berliner, the chairman of the professional committee at the Association of Mortgage Consultants who will make arrangements so that you can make the right financial decision for you.

When does the interest rate increase take effect for mortgage holders

"The increase in the Bank of Israel interest rate goes into effect on Thursday, and it will make the prime component of the monthly repayment of the mortgage more expensive on the date it is paid from the bank account. Regarding the fixed interest rates, the banks already raised them last week after the publication of the inflation data, following the estimates that the Bank of Israel interest rate will rise."

A non-linked fixed interest rate is the most profitable route today, photo: Yehoshua Yosef

How much more will the mortgage repayment cost

"According to our assessment at the Association of Mortgage Consultants, comparing an average mortgage from the beginning of the year, before the first interest rate increase, to an average mortgage today - there is an increase of NIS 863 in the monthly repayment, and an increase of approximately NIS 260,000 in the total cost.

"If the interest rate does rise to the level of 3.5% in January, as estimated in the capital market, an additional price increase of nearly NIS 400 is expected in the monthly repayment, and an additional increase in the total cost of NIS 112,271 throughout the duration of the loan."

What do you do when the monthly repayment on the mortgage becomes too "heavy"

"Whoever sees that the monthly repayment has become too much for him, he should check the possibility of refinancing the mortgage. Those who have an affordable interest rate that they received in the past on part of the mortgage, will be able to carry out a partial internal turnover, only of the variable interest component."

According to Berliner, "The 100% fixed and non-linked interest rate route is currently considered the cheapest route, if you hold the mortgage for a long period without repayments or cycles. For more than a decade, the prime route was considered the most profitable route, but this is no longer the case, and recently the percentage actually increased The use of the 100% route, mainly because of early repayment fees that can reach tens of thousands of shekels in a fixed interest route."

Berliner adds that the profit that the banks charge on the prime route also increased in the recent period by 0.2%.

On the same issue, the Deputy Governor of the Bank of Israel, Andrew Abir, said yesterday in an interview with "Globes" that "those who took out a mortgage during the days of the increase in the prime component, should have taken into account that the interest rate will rise."

According to Berliner, this is an "outrageous and disconnected" claim on the part of the Bank of Israel senior.

"The borrowing public actually has no real alternative to the prime route because it is the only one that does not have the risk of particularly high fines in the case of turnover or early repayment. It is implied from his statement that the role of the government is to take care of real estate prices and of the central bank to maintain the stability of the banks.

Instead of the central bank blaming the public and the government, it should deal with the early repayment fees in the fixed interest rates in order to create real alternatives for the public."

Is it worth freezing the mortgage payments

"It is true that over the past few months the monthly repayment has increased and this is putting a lot of strain on the flow of households, but the recent interest rate increase should not mean that the monthly payment will return. If the borrowers nevertheless find themselves in a situation where they anticipate that the monthly repayment is expected to return in the next month or two - it is worthwhile for them to 'freeze' the mortgage, than it will come back."

However, Berliner emphasizes that it is important to be careful even with the "freezes" and it is not a magic solution.

"If it was my mortgage and I had a problem meeting the upcoming payments and I decided to refinance, I would take a current account loan so as not to freeze.

The reason is that a mortgage freeze is reported to the credit bureau as a late payment, which means it damages a customer's credit rating and this just before the transaction is made."

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