Dawn Wolf16.12.20 21:27 A. Tevet Tishpa
(Photo: Yossi Zamir / Flash 90)
The Bank of Israel, which dictates the policy in the economy, issued guidelines last night (Tuesday) that in a few weeks it will be possible to change the mortgage components so that the prime track component will be two-thirds of the loan.
I have received in the last day hundreds of phone calls, WhatsApp emails, etc. asking about this move, I want to briefly explain the move and what I think will happen in the wake of it
introduction: The prime interest rate is an interest rate that is declared between the banks following the interest rate of the Bank of Israel, now the Bank of Israel interest rate is 0.1% and the prime interest rate is 1.6%. Mortgages have many laws.
Some history
Let’s go back in time a bit .. The elderly here like me remember that in the past the mortgage was only on the prime component, but the prime was much more expensive. As it began to decline, the banks began to increase the price of this route, and then additional routes were born that gave every claimant, such as the dollar route, the euro route, and many other routes that included very high profitability for the bank.
A few years ago following the drop in interest rates in the economy, he wanted to protect the citizens and therefore restricted this component in the mortgage. He justified this by arguing that when a household takes out a mortgage and its repayment is a certain amount it will not be able to meet the repayments that will increase significantly, meaning that whoever takes a monthly repayment and takes everything in the prime component can find himself hundreds of shekels a month at short notice. Therefore the policy was to give fixed interest rates and only a third in prime.
The change of the Bank of Israel
In recent years, the Bank of Israel has been attacked for this move because the prime interest rate is low and will remain low for a long time to come. The claim against him was that the citizens pay a lot of unnecessary money. Therefore the bank changed its policy. This does create insane uncertainty for people who take out a mortgage for a long period, (it is true that it is always possible to refinance but that the interest rate also increases the turnover is expensive).
Where it concerns us?
Anyone who understands the banks a bit can guess that the banks are not going to lose from this move, I do not see any headline announcing in a year that mortgage profitability is down by a third Conversely, banks will take advantage of this.
One of the things I learned when I ran the bank is to price, every product in the bank is priced and also a priced mortgage, that I get to the bank I build a margin, i.e. how much I agree the bank will profit on the customer. This is in accordance with a great many elements related to the transaction and the customer. The bank works according to the interval, how much money the bank will earn from the transaction, in what amount it is worthwhile to make the transaction and in what amount it gives up and sends you to another bank.
The mortgage spread is the bank’s largest profit of all banking products, it is a loan that accrues compound interest for a very long period.
When one component is cheap, another component will become more expensive, in my opinion we are likely to see a high increase in the prime interest rate on the mortgage, whoever chooses and takes a maximum mortgage on the prime interest rate will get a high prime interest rate and a high interest rate on the other components.
In conclusion
The announcement by the Bank of Israel aims to fuel the real estate market to give investors a boost. The big advantage will be for those who buy an apartment for a few years, in the prime route there is no repayment fee and it will supposedly be to his advantage.
On the other hand, this interest rate can be very risky for people who take out a mortgage when they are on the edge of their repayment ability.
Shahar Wolf, Mortgage and Business Finance Specialist. He has a master’s degree in finance and is a former manager at Discount Bank.
Did you find a mistake in the article? Does the content in the article infringe your copyright? Encountered an inappropriate advertisement? Report to us