Mortgage guide

The Complete Guide to Your Mortgage in Israel

When it comes to purchasing a property in Israel, navigating the intricacies of mortgages in Israel is a vital step towards achieving homeownership. A mortgage serves as a financial bridge, making homeownership a reality for many. Unlike conventional loans found in many other countries, the Israeli mortgage landscape is characterized by unique features and options.

This comprehensive guide will walk you through the nuances of obtaining a mortgage in Israel, from the various types of mortgages available to the steps involved in securing one.

Types of Mortgages in Israel
Before diving into the application process, it’s crucial to grasp the different mortgage options available.  In Israel, three primary types stand out: Tamhil, Interest Deduction, and Age-Restricted mortgages, etc.

Tamhil: A Blend of Opportunities
In contrast to the single-loan structure commonly seen in other countries, Israeli mortgages consist of a combination of smaller loans, each carrying different interest rates and terms. This intricate arrangement is referred to as Tamhil. Within the Tamhil framework, multiple routes exist, allowing borrowers to tailor their mortgages to their financial preferences and risk tolerance.

No Interest Deduction mortgages
These cater to those ineligible for tax deductions, unlike certain countries where mortgage interest can be tax-deductible, Israel does not offer this benefit, even for self-employed individuals working from home. This peculiarity shapes the financial landscape of Israeli mortgages, influencing how borrowers approach their financial planning.

Age-Restricted mortgages
Another requirement distinctive to Israeli mortgages is the stipulation that borrowers must fully repay their loans by a specific age range, generally around 80 to 85 years. This requirement adds an additional layer of consideration for individuals approaching retirement or planning their long-term financial stability.

Applying for a Mortgage

Securing a mortgage in Israel involves a systematic approach. The application process requires presenting a range of documents that cater to your specific status and country of origin. These documents typically include the mortgage application form, identification (Israeli or foreign), bank statements from all checking accounts, credit score, and income verification in the form of pay slips, income tax returns, or annual income summaries.

Mortgage Loan Amounts in Israel

Loan amounts in Israel vary depending on several factors, including the property’s value, your financial capacity, and the lender’s policies. Generally, lenders offer up to 75% of the property’s value, but this can be influenced by the type of mortgage and your individual circumstances. For example, First-property buyers can access up to 75% LTV, while additional properties are eligible for 50% LTV. Non-Israeli residents, however, are limited to a maximum of 50% LTV.

In-depth look into Rates and Tamhil

Understanding the nitty-gritty of mortgage rates is essential. Israel offers a range of options, including Prime Interest, CPI-Linked Fixed Interest Rates, CPI-Linked Interest at Variable Rates, and Interest Linked to Foreign Currency. Each option comes with its pros and cons, and selecting the right one depends on your financial goals and risk tolerance. Israeli mortgage options encompass a diverse array of interest rates and loan characteristics. These include:

Getting Pre-Approved

Before embarking on your property search, obtaining pre-approval for a mortgage is advisable. Pre-approval gives you a clear idea of your budget strengthens your bargaining power and allows you to accurately budget based on your borrowing capacity before property hunting. Securing a mortgage in Israel starts with assembling a Tamhil combination. With this in place, the bank provides preliminary approval valid for a specific period.

Finding the Right Property

With pre-approval in hand, you can start your property hunt with confidence. Focus on properties that align with your budget and preferences. Real estate agents can provide invaluable assistance in locating properties that match your criteria, especially in Israel when searching for properties online, which can be challenging for non-Hebrew speakers.

Property Appraisal

Once you’ve identified a property, a thorough appraisal is conducted to determine its market value. The bank requires an appraisal conducted by an approved appraiser. While the cost ranges from NIS 500-1000, it’s a necessary step to determine the property’s market value.

Finalizing a Loan and Mortgage Insurance

After settling on a property and receiving the lender’s approval, the finalization process begins. This involves opening a file with the bank, paying a fee, and signing the mortgage agreement. Upon signing the mortgage agreement, mortgage insurance, covering life and property, becomes a requirement. While the cost is reasonable, it adds an essential layer of protection.

Mortgage Broker or DIY?

Deciding whether to use a mortgage broker or navigate the process independently is a significant consideration. A mortgage broker can offer expertise and streamline the process, but going the DIY route may save you a broker fee. At the end of the day it’s your decision, just consider that the expertise a broker offers may save considerable money in the long run.

Conclusion

Obtaining a mortgage in Israel is a journey that demands careful consideration and meticulous planning. It requires a solid understanding of the unique features it offers, such as the various mortgage types, rates, and application process, so that you can confidently step into the world of homeownership. Whether you’re a first-time buyer or a seasoned investor, this guide equips you with the knowledge needed to make informed decisions on your path to acquiring property in Israel. Enlisting professional guidance can enhance your mortgage journey, helping you secure a suitable deal and successfully become a homeowner in Israel.

Tanya Harel | Aug 29, 2023