Not just a mortgage: How to finance buying an apartment?

A mortgage is not the only option for financing a home purchase. Here are ways to buy an apartment without a mortgage and finance a home purchase in other ways, including the advantages and disadvantages of each method.

Those who come to a mortgage advisor and have decided to buy an apartment usually expect the advisor to find them the best mortgage for their needs.

One of the differences between Bank mortgage advisors - that they are salespeople - For private mortgage advisors, that private mortgage advisors will talk to their clients not only about a good mortgage but also about A good financing plan.

Suppose we need a total credit of one million shekels to finance the purchase. The bank will naturally offer us a mortgage of one million shekels. But an apartment can be financed in various ways, and a mortgage is only one of them. Other ways to finance at least part of the apartment purchase:

Advantages and disadvantages of financing a home purchase outside of a bank

Loans from non-bank entities have advantages and disadvantages. It's worth knowing them and not automatically assuming that anything outside of banking is necessarily better or worse.

In reality, there isn't a "better" or "worse" here, only "more suitable for you.".

Advantages:

Many times, not only will those 100,000 shekels be significantly cheaper than the bank's mortgage interest, but because we took less money from the bank, we will also lower the financing percentage, and we will get a cheaper price for the 900,000 than we would have gotten from the bank for a million shekels. 

Disadvantages:

These are usually shorter loans, so even when the interest rate is low in percentage points, the monthly payment is high in shekels.

When we create a financing plan, we consider a monthly payment of, say, 5,000 shekels. It doesn't matter to us if these 5,000 shekels are called a mortgage or if 3,000 of them are called a mortgage and 2,000 of them are called a pension loan. It happens that because of a loan that seems cheap but has a high monthly payment, we extend the more expensive loan by additional years to bring the monthly payment down to a manageable level, and in the end, we only harm ourselves.

It has already happened that I showed people that even taking an interest-free loan from their aunt for seven years caused them financial damage and it would have been better to forgo it. 

Loan from the workplace

It might be much cheaper to take out, say, a 100,000-shekel loan from your employer. For example, government employees are eligible (based on various criteria) for loans of up to 100,000 shekels over ten years at a fixed, non-indexed interest rate of around 11%.

This loan is called a Government Housing Loan (terms are determined by the Accountant General of the Treasury). Employees in different companies receive different terms related to their workplace or profession, etc. 

Loan from a pension fund or a study fund

It's possible to take a loan against a pension fund, a provident fund, or a study fund. This loan is very low-risk for the lending institution – if we don't repay it, they'll simply take the money we have with them.

To achieve it It is recommended to contact all entities where we have money and check the loan terms they can offer. Sometimes it is worthwhile to transfer a study fund or pension from one company to another based on the loan they provide. It should be emphasized that even if we took a loan from the pension fund, the pension itself will not be affected as long as the loan is repaid on time.

Mortgage from non-bank financial institutions

In recent years, both private companies and insurance companies have been offering mortgages, which are large loans for many years (up to 40 years), secured by real estate. Insurance companies such as Clal, The Phoenix, and Menora Mivtachim offer mortgages in addition to their usual insurance activities.

Additionally, there are companies whose entire business is raising investors on one hand and providing credit, including mortgages, on the other, similar to banks (these companies are not defined as banks because they do not manage checking accounts, only deposits and loans). Among these companies are Trea and BTB – Be The Bank, whose name precisely hints at its activity.

Summary

You should plan your apartment purchase with a financial planner or advisor who is familiar with all the options and can provide you with the most suitable solution. You don't want the same carpenter for whom everything looks like a nail that needs to be hammered. You are welcome. Talk to me.

If you are still exploring your options, you are welcome to receive a free chapter from my book, "Effective Mortgage":