New mortgage regulations - Overview of the current market situation
Recently, new guidelines from the Bank of Israel have been published in various media, some of which have been approved and will come into effect on January 17, 2021, for new mortgage borrowers and for renegotiations of loans already underway from January 17, 2021. February 28, 2021 .
The new directives make it possible to increase the component of the “Prime” up to 2/3 of the total loan against 1/3 so far. The media coverage was created because of the low level of interest rates, which have been around 1.6% for a long time.
But is it really safe to take more “Prime”?
In addition to this, you will need to know more about it.
The more we choose the “Prime” rate instead of a fixed interest rate, the more vulnerable we will be to changes in interest rates, and banks can be expected to raise interest rates. interest for those who ask for more rates in "Premium". Today, the level of interest rates is very low, among the lowest since the establishment of the State of Israel, and therefore it is worth considering taking more fixed components and thus reducing the possible mortgage modifications. In summary - it is not certain that the new relief will be real good news during this period, but it is very possible that later competition will lead to a low interest rate of the "Prime", which will lead to a reduction. significant for future mortgage borrowers.
In addition to this, you will need to know more about it.
Another new regulation that has not yet been approved concerns the reduction of prepayment charges. While today there is a 20% reduction on the prepayment charge after two years, and a 30% reduction after 5 years, now a 50% reduction will be added after 8 years. The reduction will be very beneficial for those who wish to refinance a mortgage or for those who intend to repay before the end of the mortgage period. This is because prepayment charges can reach tens of thousands of shekels, and in many cases, people refrain from refinancing a mortgage because it makes the turnover unprofitable. Note that there is no prepayment charge on the “Premium” portion, so if customers increase the portion of that rate, the overhead prepayment charge will also be reduced.
Mortgage freeze
Following the Corona pandemic, the Bank of Israel decided to broadly approve the possibility of a mortgage freeze in order to make everyday life easier for all borrowers in such a time of uncertainty. You can either freeze only the principal payments and pay only the interest portion, or freeze the entire payment and not repay the loan at all. Some people thought that this was some kind of a favor and that since they did not pay a monthly payment, the mortgage would be suspended for a few months without charge. However, in reality, in the case of a partial freeze, the monthly repayments are in fact "money thrown in the trash" because the principal to be repaid is not used and the interest is paid. In the case of a full freeze, the cost is even higher since the interest not paid during the freeze period is spread over the remaining mortgage balance and will be paid at the end of the mortgage period (and will incur additional interest charges).
In addition to this, you will need to know more about it.
The monthly repayment after the freeze period is therefore expected to increase both due to the additional interest charges and the fact that the mortgage balance now has to be repaid over a shorter period. In conclusion, behind the relief is a considerable cost that the freezing of the loan entails and it is therefore advisable to avoid freezing mortgage payments and only use this lifeline in cases where it does not. there is no other choice.
Investors
In recent months, there has been a massive influx of investors into the real estate market. The main reasons are the very low interest rate environment, in particular the possibility of early repayment with less exposure to taxes, reducing the purchase tax from 8% to 5%.
In addition to this, you will need to know more about it.
The state housing assistance program named “Meh'ir Lamishtakene” (מחיר למשתכן) is in its final stages of existence, and in the absence of an alternative plan, this will create greater demand on the land. estate market. At the same time, housing starts are lower than the demand for housing each year - resulting in higher prices and increases across the country are expected in the near future, except for commercial real estate such as stores and offices, where recent times have created an increased risk for vacant properties.
The level of interest rates and new regulations therefore force us to verify the viability of our mortgage cycles and those of our clients. In many cases, tens and hundreds of thousands of Shekels can be saved, even in cases where prepayment charges are high. This is definitely the time to buy a property for residence or for investment and thus take advantage of low interest rates and a mortgage loan opportunity on the best terms.