I don't know what the index will be in the future, so I'm not referring to it.

Will you be able to pay the mortgage in a few years?

My consulting documents are, to put it mildly, not well-liked by the bankers. This makes sense, my consulting document has a built-in conflict with the banker. The banker wants the client to pay as much as possible, I want the client to pay as little as possible. No news there.

Usually, a client holding my consulting document calls me after a meeting at the bank to get reassurance after a banker has offered various "efficiency suggestions.".

One of the things I don't like is when a customer calls while they are still in front of the agent. I'm not particularly interested in them having me speak directly with the agent in front of the customer. I don't like a "cockfight" when it's clear my approach and the agent's are just the opposite. On the other hand, when a customer did this last time, it gave me food for thought, and for that I'm happy.

The same client wanted a loan of a million [shekels] with a monthly repayment of 4000 shekels. I said it was not possible, and the bank's mortgage seller said it was and built a suitable mix. At this point, the client asked me to resolve the "dispute" with the bank's mortgage seller. I asked the seller what she thought the client's monthly repayment would be in 5 years.

She gave me a horrifying answer, in my opinion: "I don't deal with that. I have no way of predicting the future."

I said to her: If you gave a loan of 100% with variable repayment terms, how is it possible

That the refunds won't change? I'm not a fortune teller and I don't know how they will change, answered the mortgage broker.

Without batting an eye.

Just so there are no misunderstandings, I don't predict the future either.

But unlike the clerk, I believe that my responsibility isn’t to sell a mortgage; rather, my responsibility is to ensure that the customer doesn’t go bankrupt during the 30 years they’re paying off their mortgage. In any business—whether it’s a factory, a bank, or a family—there are uncertainties about the future. No one knows what the future holds, but everyone knows that if we’ve reached the lowest interest rates since the founding of the state—with the Bank of Israel’s interest rate at 0.11% and the index hovering near zero—then these parameters won’t remain the same for the next 30 years.

Therefore, every business, including a bank, does Scenarios and asks itself how revenues would change if the index were 2% and the Bank of Israel’s interest rate were 3%? Or in a more extreme scenario, etc. The bank uses these scenarios when it decides to grant, for a certain period, Non-indexed interest rate For a 4.21% term, and for a shorter period, it will pay interest of 3.81%, and so on. If, for the same period, the bank offers a non-indexed interest rate of 3.81% and an indexed interest rate of 21%, then this implies an assumption that the index will be approximately 1.81%.

We can look at the issue from a different, perhaps simpler, angle: if the clerk "doesn’t know" what the future holds, why does she specifically choose the zero index and the 1.6% prime for the next 30 years? After all, zero is a number like any other, and the probability of the zero index is similar to that of the 10% index in any given year over the next 30 years. Why is zero the winning number? For a very simple reason:, Zero index allows for selling more mortgages.

The clerk is the "magician" who allows the family to take a million shekel mortgage and only pay back 4,000 shekels a month.

But if we take a more serious look, we can say with certainty that the 0% index will not remain at zero for more than a few consecutive years over the next thirty years. In fact, looking back, we can see that since 1997, there has not been a single instance of two consecutive years with a zero index. In contrast, indices above 3% have certainly occurred for several consecutive years. In other words, if we accept the assumption that zero is a number like any other, then someone who cannot "predict the future" has a better chance of being close to "what will happen in the future" if they choose an index of 1.5% – 4% than if they choose an index of zero percent.

Source: Central Bureau of Statistics

When you sit down with a bank mortgage salesperson, they do what any salesperson does, try to close a deal quickly to move on to the next client. There is little Bank limitations Israel and a few limitations of the bank itself, but it's easy to overcome them and close the deal for the client. This client will perhaps be satisfied on the day they receive the apartment, but after a few years, when they will have real difficulty paying the mortgage, they will already be far from that seller who arranged the financing for their new apartment.

50% of secular couples who get married will eventually divorce. It’s unpleasant to think about this at the beginning of a relationship, but the statistics cannot be ignored. Of the 50% who will not divorce, I assume there is a high percentage of couples who will not be happy. In my opinion, financial pressure exacerbates every other problem in family life and increases the risk of its breakdown.

What needs to be done to avoid problems with your mortgage later on? First of all, understand that "succeeding" in getting the mortgage is not a success. Succeeding in paying it off over 10-30 years is a success. You should take a mortgage that, according to projections of future prime rates and index values, you can afford to pay.

 Always use a mortgage calculator that takes into account the Consumer Price Index (CPI) and potential changes in interest rates. If you don’t have a calculator that can account for changes in interest rates and the CPI, enter values for the CPI and interest rate that are approximately 2% higher than the current figures, and check what the maximum monthly payment on your loan would be.

If you choose to consult a professional advisor, which I naturally strongly recommend, choose one who can give you a future return forecast. Demand to know under what working assumptions (index and interest rate) the advisor's forecast was made.

A client who meets with me receives a forecast using my unique EFM system. This system generates a forecast based on dynamic and cyclical index and interest rate changes, which are, of course, an approximation of the economy's usual behavior. In this way, one can see how mortgage repayments will also behave in the future:

The graph above shows a real-life mortgage for a couple seeking advice on refinancing. The original mortgage has a current balance of over one million shekels and a monthly payment of 4,500 shekels. The bank, of course, gives the impression that you can borrow more than one million shekels with a monthly payment of less than 5,000. Big mistake!

In a few short years, the return will skyrocket, reaching a peak of about 6,500 shekels. This is very bad and sad for a couple who could not afford to pay more than 4,500.

One last piece of advice, my experience has shown that professionals tend not to pay attention to information that their salary depends on them not paying attention to. Always get a consultant who will be paid even if their recommendation is "Don't you dare take out this mortgage." In any case where the consultant's salary depends on you taking out a mortgage, there's a chance that their subconscious will be influenced, even for a consultant with high integrity.