Dowry mortgage

Couples interested in purchasing their first home are required to contribute 25% of the purchase price of the apartment. In other words, according to Bank of Israel guidelines, the maximum mortgage amount is 75% of the apartment’s purchase price.

For couples who cannot afford to cover the required down payment out of pocket (as mentioned, 25% of the purchase price of the apartment) but whose parents own a mortgage-free apartment and are willing to help, there is another option. Dowry mortgage This is essentially an option for parents to help finance the 25% by taking out a loan secured against their existing home.

 For example, let's assume a couple is interested in purchasing an apartment for one million shekels. This couple could take out a mortgage of 750,000 shekels and would need to finance 250,000 shekels out of pocket. If the couple is unable to come up with 250,000 shekels out of pocket, but only 150,000 shekels, they could proceed as follows:

1. The couple's parents will take out a loan of 100,000 shekels, mortgaging their residence. Payments for this loan will be debited from the young couple's bank account (unless the parents wish to pay the loan themselves).

The loan taken by the parents, along with the young couple's savings, will bring them to the threshold of the required down payment, and thus the couple will be able to take out a regular mortgage of 750,000 shekels and purchase the apartment.

In summary, the apartment at a price of one million shekels was financed by:

• 150,000 – The young couple's savings.
• 100,000 shekels – parents' dowry mortgage.
• 750,000 shekels – the couple's regular mortgage

Important highlights Dowry mortgage

1. Increase in financing percentages – taking out a larger loan and mortgaging two apartments increases the risk. It is important to ensure that the family can repay all debts from its current and future income (after deducting expenses that may increase, for example, due to family growth).
2. It is important to understand that failure to meet mortgage payments will result in the seizure of not only the couple's apartment but also the parents' apartment.
3. Inviting one side of the parents into the family's financial affairs can cause problems. One should think carefully about whether to get involved at all, or to wait before purchasing an apartment. A couple that can afford a mortgage with high financing percentages can usually also save money each month. It might be worthwhile to simply wait for an increase in equity.
4. It's not romantic, but it's worth remembering that a third of couples get divorced. In my opinion, the percentage is much higher in the secular sector. In case of a breakup, you won't want your parents as partners in dividing assets.