Mortgages

Almost all mortgages in Israel are variable-rate loans linked to either the LIBOR rate, inflation rate, or some other index. The following is a brief summary of some of the most common mortgage options:

1. Prime rate loan is a shekel-denominated loan based on (i.e. linked to) the Bank of Israel ‘prime rate.’ Monthly repayments will vary any time the Bank of Israel adjusts its bench mark interest rate. The prime rate is 1.5 basis points above the Bank of Israel rate. Banks price their prime rate loans depending on the applicant’s financial standing, and will quote clients a range of interest rates for this loan, for example, “prime rate minus 0.5%.” A prime rate mortgage has no prepayment penalty, but may have other restrictions when making an early repayment.

2. Madad Loans are linked to the cost of living index or C.P.I (known in Israel as the ‘Madad’), and will adjust monthly based on the published inflation rate. There are a number of varying lengths that a person can choose to “lock” in an interest rate on this loan. Keep in mind that while a bank may offer a “30-year fixed loan,” “fixed” applies only to the actual interest rate, while the loan payment (and principal) will be adjusted for inflation. Banks offer this loan in a variety of periods, anywhere from a variable monthly interest rate up to a 30-year term.

3. Dollar or Euro-Linked Mortgage is a shekel mortgage linked to the dollar rate for a period of up to 30 years. The currency of loan and repayment is in shekels according to the exchange rate on the day of repayment. The mortgage’s interest is the currency LIBOR rate plus a fixed premium set by the bank. These loans usually have no prepayment penalty, but can have other restrictions when making an early repayment.

4. Foreign Currency Mortgage is available in a number of the major currencies, including USD, Euro, Sterling, Swiss Francs, Yen and Canadian Dollars. The mortgage’s interest is the currencies LIBOR rate plus a fixed premium set by the bank. These mortgages are generally available up to 20 years and the monthly repayment is in the currency that was borrowed. This type of loan can help to offset any currency risk for borrowers who earn in the currency of loan.

5. Bridge Loan and Interest-Only Loan are usually extended to borrowers who own an apartment, for purchasing a property in the interim period until their previous apartment is sold. The bridge loan is a short-term loan for a period of up to two years. Interest-only loans can be offered up to 10 years and can be refinanced into a regular loan if the borrowers decide they would like to begin paying off principal at some future date.

To speak with a consultant about which of these options may be best for you, please click here.