By Ben Levine
There are a wide range of mortgage options offered by the various lending institutions in Israel and it is important to select the loan that best fits your financial profile. Some of the most popular loan options available in Israel include:
1. Shekel Mortgages
The shekel mortgage is the most common type of loan offered by Israeli banks. It is generally a variable rate mortgage, which means that your repayments are not fixed for the period of the loan and will increase or decrease depending on current market rates and economic conditions. The majority of shekel loans are either linked to the Bank of Israel Prime rate or to Madad (cost of living index). The maximum mortgage period is up to 30 years. Recently a few banks have offered a completely fixed rate shekel loan, at higher interest rates than the variable option.
2. Foreign Currency Mortgages
This is a mortgage in a foreign currency such as Dollars, Sterling, Euro, Swiss Franc or Japanese Yen. The interest rate is based on the LIBOR (London Inter Bank Offered Rate) of that currency plus a bank fixed premium. Many homeowners choose a foreign currency mortgage that parallels the currency of their income in order to ‘hedge’ themselves against currency fluctuations. For example: A US Dollar income earner might choose a US Dollar mortgage in order to avoid the impact of a depreciating US Dollar. Other homeowners choose foreign currency mortgages because of more competitive interest rates. Taking out a loan in a currency other than the currency of one’s income involves substantial currency risk. If the currency appreciates one can find themselves paying far more for their loan than anticipated.
3. Fixed Loans
Until recently, almost all loans in Israel were linked to variable rates. More recently, some lending institutions have begun offering fixed rate loans for a maximum period of 20 years. Although these mortgages guarantee the payment for the duration of the loan, they can sometimes have significant penalties in the event that the mortgage holder prepays the mortgage. Currently there are a number of banks that offer loans to foreigners. Each of these banks has its own individual products and terms of loan. The rates and service can vary greatly between different lenders. Over the past few years there has been a large increase in the number of foreign buyers, both as second homes and for investment purposes. A loan can be arranged for a foreign resident without having to ever visit Israel.
Ben Levine can be contacted at firstname.lastname@example.org