Taking out a mortgage is one of the most significant financial decisions people make in their lifetime. It is a long-term financial commitment that allows many to fulfill their dream of purchasing a home, but at the same time it requires in-depth understanding and proper planning.
The world of mortgages offers a variety of paths and options, and each choice can affect the borrower’s financial future. Whether it is a variable interest rate, a fixed interest rate, or a combination of the two, it is important to know the advantages and disadvantages of each path and adapt it to personal needs.
Understanding the key concepts and tools available to borrowers can make the process simpler and help you make informed decisions. This article will provide essential information to help you understand the world of mortgages and deal with the challenges along the way.
What is a mortgage?
A mortgage is a long-term loan, usually for a period of up to 30 years. It is used to finance the purchase of a home or other property, with the property in question pledged to the bank as collateral for the loan repayment. This model allows banks to offer significantly lower interest rates compared to regular loans, where there is no collateral.
Types of mortgages
There are several types of mortgages, each of which is suitable for different financial needs:
- Index-linked mortgage : This loan is linked to the consumer price index. Repayments vary according to changes in the index, and you can choose between a fixed-interest or variable-interest rate track.
- Non-index-linked mortgage : The loan is not dependent on the consumer price index. Types of tracks include: prime-rate mortgage, fixed without linkage, or variable without linkage.
- Prime mortgage : The loan interest rate in this track is calculated according to the prime interest rate (Bank of Israel interest rate + 1.5%) and varies according to updates in the Bank of Israel interest rate.
- Foreign exchange-linked mortgage : This loan is linked to foreign currency values (for example, dollars or euros), so the repayment depends on changes in the exchange rates of the selected currency.
- Mortgage for eligible persons : A loan granted under special conditions to those who possess a certificate of eligibility from the Ministry of Construction and Housing.
Reverse Mortgage: What is it and who is it suitable for?
A reverse mortgage is a special loan designed for property owners, who are usually of retirement age. With this loan, you can receive a lump sum or monthly amount of money, against the lien on your existing property. The loan does not need to be repaid during the borrower’s lifetime, but only when the property is sold or when moving to another home. It is especially suitable for retirees who want to increase their cash flow without selling their home.
- Bank mortgage : Provided by banks or private financial institutions. The interest rate and repayment terms are adjusted to the market and depend on the characteristics of the borrower and the mortgaged property.
- Subsidized mortgage : Provided to certain populations on improved terms, usually by government agencies such as the Ministry of Construction and Housing. The interest or part of the loan payments are subsidized by the state, so that the repayment is cheaper than a bank mortgage.
A subsidized mortgage is intended primarily for new immigrants, young families, and other eligible individuals.
How do you choose a suitable mortgage?
Subsidized mortgage
A subsidized mortgage is provided with the support of the state, through the Ministry of Construction and Housing or other government bodies. It is usually offered to eligible populations such as young families, new immigrants, and residents of the periphery. The interest rate in these tracks may be lower than the market norm. The criteria for granting these loans are determined based on parameters such as years of marriage, number of children, or economic rating. The goal is to help homebuyers meet the costs.
Bank mortgage
A bank mortgage is a loan offered directly by commercial banks and its repayment terms are based on commercial considerations. Interest rates are determined in accordance with banking anchors (such as the prime interest rate) and spreads defined by the banks. With bank mortgages, you can choose between various routes, such as fixed or variable interest rates, and combine them. Banks have great flexibility in providing loans, but the terms are selected according to the customer’s repayment capacity and financial situation.
| parameter | Subsidized mortgage | Bank mortgage |
| Source of funding | Government assistance | Commercial banks |
| Interest | Low and sometimes constant | Diverse, dependent on anchors and market conditions |
| Target audience | Eligible according to state criteria | Each borrower meets the bank’s requirements |
| Flexibility in routes | Limited | High |
A subsidized mortgage provides the option of preferential terms for eligible borrowers, while a bank mortgage offers greater flexibility depending on personal needs and market conditions.
Mortgage application support and process
Taking out a mortgage is a significant financial step that requires precise planning and meeting specific requirements and criteria. Each process includes submitting important documents, assessing your ability to repay, and choosing between different types of mortgages.
Required documents and main criteria
- ID card : Borrowers must present a valid ID card for identification and verification of personal details.
- Proof of income : Documents are required to prove financial repayment ability, such as recent pay stubs, annual reports for self-employed individuals, or income affidavits from authorized sources.
- Proof of eligibility : For subsidized mortgages, a certificate of eligibility must be provided from the Ministry of Construction and Housing, which is issued according to the population status and socio-economic background.
- Property documents : Purchase agreements and documents proving ownership of the property are required for registration and receipt of the mortgage.
Mortgage Eligibility: A Useful Guide
Eligibility factors depend on the type of mortgage and the restrictions set by the banks or the state. In subsidized mortgages, eligibility is given to certain groups including young couples, old families, new immigrants, the disabled and recipients of income support benefits. Obtaining eligibility involves contacting the Ministry of Construction and Housing and obtaining the necessary approval.
In regular mortgages offered by commercial banks, the requirements are defined according to the borrowers’ income, their credit history, and the size of the requested loan relative to the value of the property.
Mortgage Calculator: Calculate the Amount You Will Receive
Mortgage calculators are tools that allow you to calculate in advance the amount you can receive and the monthly repayments. You must determine the desired loan amount, define the repayment period, and check the interest terms of the chosen route.
For example, under conditions of 3% interest for a period of 20 years, a loan of NIS 1 million will require an average monthly repayment of approximately NIS 5,550. The mortgage calculator helps examine the possible repayment and the effect of changes in interest rates on the total cost.
Managing the mortgage after receiving it
Managing a mortgage properly can save costs and improve your financial conditions over time. There are several important processes that can be carried out after receiving the mortgage.
Mortgage Refinancing: How Does It Work?
Mortgage refinancing is a change in the terms of an existing mortgage with the bank, which allows the existing conditions to be improved according to market conditions.
- Reviewing new terms : To determine if a mortgage refinancing is a viable solution, a comparison is made between the existing terms and the new loan terms. A mortgage balance report is used as a tool to obtain accurate data.
- Costs associated with refinancing : Refinancing mortgages involves various costs, such as exit fees or fees for opening a new loan. The feasibility of the process must be verified based on the calculation of the cost versus the potential savings resulting from the new interest rate.
Mortgage towing in the event of a property change
A mortgage rollover occurs when borrowers sell a specific property and purchase a new one. In this process, the liability is transferred from the property being sold to the new property.
- The full process : The bank examines the value of the new property and the borrower’s financial ability before approving the move. The process is somewhat similar to the process for applying for a new mortgage.
- Bank Requirements : To perform a towing, the bank must be updated on the process of selling the property and transferring the mortgage to the new property. Sometimes additional documents are required to complete the operation.
How to track mortgage payments?
Strict monitoring of mortgage payments helps ensure compliance with the loan terms and avoid additional charges.
- Choosing a tracking system : Using dedicated payment management applications allows for ongoing monitoring of monthly repayments, loan balances, and other essential data.
- Updating data with the bank : In the event of changes, such as a change in interest rate or an increase in the monthly payment, it is important to ensure that all relevant data has been updated in the bank’s system and in personal reports.
Related costs and financial planning
Subsidized mortgage
A subsidized mortgage is provided with state support and is intended to help eligible populations finance the purchase of a home. The support is mainly expressed in lower interest rates compared to what is customary in the market. The interest rate is determined according to government criteria, and the conditions are tailored to populations such as young couples or families from the periphery. This mortgage is less flexible in terms of routes and the impact of financial changes in the economy.
Bank mortgage
A bank mortgage is offered by commercial banks with wider customization options. Banks allow for a combination of different interest rates such as fixed, prime or variable interest rates. The loan terms and interest rates are determined according to the anchors and the borrower’s financial situation. A bank mortgage is suitable for those looking for greater flexibility in the composition of payments and future changes.
