The facilitations and changes in the mortgage market: this is how you can save

As a complementary measure, an examination is currently being carried out at the Bank of Israel regarding the method of calculation and the level of the early repayment fee on housing loans, which will reduce the mortgage recycling when a borrower comes to take this step. Updating the early repayment fee mechanism involves consultations with the Ministry of Justice, and requires the approval of the Minister of Finance and the Knesset Finance Committee. This procedure is expected to be promoted during 2021.

Meanwhile, and against the backdrop of the corona crisis, many froze the mortgages they took out and sought to defer repayments by six to nine months. Following the new outline of the banks, which is mainly a payment schedule, we tried to explain with the help of experts what the options are for debtors.

A recent calculation reveals that a difference of half a percent in interest on the large loan, or incorrect division of the loan parts between fixed and variable interest and linkage to the construction input index or other linkage, can lead to a difference of NIS 30,000 on average for long-term loans of NIS 800-700,000. . Therefore, “making a market” is actually the first piece of advice that can be given to those who intend to take out a new mortgage.

Added to these is the very unusual situation of the corona crisis. Not only did we take out a loan that even on days like theirs would make it difficult for many of us to repay, but God forbid layoffs or unpaid vacation expenses of mortgage takers could make it much more difficult and unexpected for them, since taking out the loan the buyers calculated what monthly repayment burden they could meet. Housing, if they persevere in their work.

Indeed, already in the first closure, the Bank of Israel recognized the problem that could arise, when suddenly more than a million and a quarter workers found themselves at home, some fired and hundreds of thousands with unemployment benefits, which reached only 70% of their salary on the eve of the crisis. And this is exactly the gap needed to pay a mortgage, since the Bank of Israel always offers borrowers not to get a refund on the housing loan that will be higher than a third of the household income.

Under the existing outline, from March to mid-November 2020, the banks deferred loans to hundreds of thousands of customers in all operating segments in a high cumulative amount of approximately NIS 11 billion.

In view of the continuing Corona crisis, the Bank of Israel’s Supervisor of Banks has formulated another outline, adopted by the banking system, which allows customers who have deferred their loans in accordance with previous outlines to continue deferring mortgage payments and consumer loans. It should be noted that, unlike the previous outlines, in the additional outline emphasis was placed on returning borrowers to pay their loans, through a facilitated payment schedule.

This will make it possible to defer loans to those whose income has fallen by 40% and their household income has not recently exceeded NIS 20,000 a month. At the same time it will be possible to defer 25%, 50% or 75% of the balance of the loans, but pay the other part of the loan as early as January. The new outline will make it possible to significantly reduce the monthly loan repayment compared to the situation up to the corona crisis.

However, the Bank of Israel warns that deferring payments is the same as new credit, given in the original interest terms under the outline, and therefore customers must make intelligent use of this tool and not defer loan payments unnecessarily. In addition, customers who defer payments must carefully examine the effect of the deferral effects on the existing insurance coverage – life insurance – under the mortgage.

The period for submitting the application for deferral of loan payments, in accordance with the additional outline, will be between January 1 and March 31, 2021. The date of entry into force of the additional outline will be between these dates at the latest, due to the need for computer systems in banks.

Is it worth taking advantage of the Bank of Israel’s permit and the banks’ consent to defer mortgage loans, or will the deferral significantly increase the monthly repayment in the future, as warned by the Bank of Israel?
Meir Wieder, CEO of Wieder Mortgages, says that the public of mortgage borrowers can be divided according to their financial situation and therefore the recommendation will change: Those whose condition has not worsened – it is definitely worthwhile to continue paying the mortgage and certainly not postpone repayments. It is also worth considering a change in fixed interest rates, as they are currently at a low.

Those whose financial situation improved during this period and returned from sickness or found a job – it is better to take advantage of the low interest rates now and refinance the mortgage. Those whose financial situation has not improved at all – it is recommended to refinance a mortgage or extend the spread. Longer time.

According to Wieder, now is a golden opportunity to take out a mortgage and refinance the mortgage, because interest rates are currently at a low level, and at the beginning of the year they are expected to rise significantly. During this period mortgage banks want to make mortgages to reach the target, and this is a great time to take advantage of the low interest rates that are currently available in the mortgage world. “I anticipate that there will be a change in the mortgage banks’ policy at the beginning of 2021, which will be reflected in raising interest rates in the economy, and this will result in a significant increase in monthly repayments.”

His tips: Prefer fixed interest rates, because during this period interest rates are very low. It is better to set tracks at fixed and unlinked fixed interest rates, and much less at variable interest rates. Strive for your mortgage mix to include about 50% fixed interest rates.

Regarding the duration of the loan, he suggests: “In this period of uncertainty it is advisable to take out a mortgage for short and not long periods of 30 years, in order to reduce risks of future effects on your cash flow. Of course, if your future financial situation changes, you can always refinance the mortgage “.

And if you already have a mortgage: “Repay it. In general, it is recommended to check the mortgage once a year and see how the terms can be changed in favor of the borrower.”

In the matter of life insurance and property insurance, during this period, which towards the end of the year, many insurance companies go on sale. Here, too, Wieder recommends examining what can be done and whether you can save on the various insurance costs. Such discounts can range from tens to hundreds of shekels a month. And more: those who buy from a contractor or from a price-per-tenant project, it is recommended to pay in advance and not wait. Even if you still do not have to pay – pay. In this way, you will “benefit” from the increase in the construction input index.

CPA Asmat and Ted, a lecturer in the Department of Management and Economics at the Open University, stressed that “postponing the mortgage payment may affect the insurance coverage purchased from the insurance company under the existing life insurance policy. It is necessary to review the fine print of the policy before we hurry up and ask for a mortgage deferral. “

Dror Feldman, director of the mortgage arm of Mizrahi-Tefahot Bank, clarified the significance of the corona period for mortgage borrowers:

My mortgage has been on full moratorium for half a year now, and I’m supposed to pay back in early January 2021. I’m not sure I’ll be able to pay back regularly. What are my options? Can I request a freeze for another period?
“It must be remembered that deferring loan payments involves payment, as unpaid repayments carry interest. Another matter is the fact that all deferred repayments will be added to regular payments from the date the freeze ends. This means that monthly repayments will increase, and their ‘weight’ will now increase. “The Bank of Israel allowed only one part of the mortgage to be frozen and to repay the other part.”

“If you have a mortgage of NIS 500,000, the balance of which is 16 years, at an interest rate of 3.00%, and the monthly repayment for it is NIS 3,282. Then:

“In the case of a full deferral of the loan repayments for a period of 6 months, the financial significance of the full freeze will be NIS 5,111, and the monthly repayment after the deferral will increase by NIS 134 to NIS 3,416.

“In a partial deferral, where the payment will be only 50% of the monthly repayment, for a period of 6 months, the financial significance of the partial deferral will be only NIS 2,555, and the monthly repayment during the partial deferral period will decrease to NIS 1,641, and after the deferral will increase to NIS 3,349.

“If, in addition to a deferral, you also decide to extend the loan period, then the monthly repayment after the partial deferral period will be NIS 3,267 – even lower than the regular repayment before it, which is NIS 3,282. The financial significance of the partial deferral together with the extension is NIS 6,871.”

To date I have not requested a mortgage freeze. Should I take advantage of the time window until the end of December and submit such a request?
“As mentioned, ‘frozen’ repayments bear interest and do not ‘disappear’. They will join the current repayments and increase them. Therefore, those who have difficulty paying the full repayment, it is better to ask to pay a partial repayment for a certain period. In addition to the partial repayment, such a borrower can even extend the loan period. For a period of time identical to the period of the partial deferral of payments, thus making it easier for himself and slightly reducing the amount of the monthly repayments from the end of the deferral period. “

We live in rent and pay NIS 5,000 for it every month. Before the plague we were able to arrange for ourselves equity, which could have allowed us to purchase an apartment, of course through a mortgage. In the meantime, like many in the economy, we too have been harmed by the corona and today my wife and I earn about 70% of what we earned before. Is it right for us to make the deal these days, and will the bank at all agree to grant us a loan against the background of the decline in our income?
“The decision whether to buy an apartment is a function of several things: the monthly expenditure of the household on housing, the required equity and the ability to repay the loan. At the end of the day a family needs a roof, and if it has sufficient income and enough equity, then it is better to pay 5,000 a month. NIS as a loan repayment – which will ultimately leave the family with an apartment of its own – rather than continue to pay NIS 5,000 for rent. ”

It should be noted that the underwriting process currently carried out by the banks, under the auspices of the Bank of Israel, allows consideration of household income in the period prior to Corona, assuming that the decline in income is largely due to the epidemic’s effects on the labor market. That is, “When a spouse arrives who has enough equity and a monthly income, which is indeed smaller than their ‘routine’ income, but still one that allows them to meet the mortgage payments, we will definitely consider the application in the affirmative,” says Feldman, adding, “Of course, if you hurt “The corona in the household income is more difficult, in the way that both spouses have been in the Knesset for several months, and both have worked in more ‘vulnerable’ industries – here the hurdle will be higher, and it is not certain that the couple is right to enter into such a deal.”

In any case, the recommendation of everyone we spoke to, is not to rush, consult an expert and always make the calculation of how much we can repay each month as part of the mortgage loan. It is worth memorizing well, that those who made a big mistake in this matter, were eventually forced to give up an apartment they purchased, and this sad result is very worthwhile to avoid.