Last week (4/30/2014), the Bank of Israel issued three new directives regarding mortgages, as well as clarifications to previous directives.Since July 2011, the Bank of Israel has issued guidelines and directives on mortgages several times. The Bank of Israel's guidelines are binding on all banks and therefore affect every borrower.New instructionsA mortgage of over 5 million shekels will be automatically considered a risky loan. Until today, the bank examined all loans according to the same parameters (repayment ability, financing percentage, and borrower history). Now, the Bank of Israel determines that even if a borrower earns 100,000 ILS per month and buys a house worth 20 million ILS with a 5 million ILS mortgage, this loan will be considered risky. This means that the bank will be "fined" by provisioning the full loan amount for doubtful debts, and the additional cost will be passed on (of course) to the borrower. I assume this doesn't really matter to most of my readers, but if someone is borderline regarding the five million bracket, recognizing this directive can save them a lot of money.A loan of less than one and a half years will not be taken into account when calculating your disposable income. One of the Bank of Israel’s previous guidelines stipulated that mortgage payments could not exceed 50% From disposable income of the lenders. Disposable income means the income Net After deducting fixed expenses. The banks had previously included repayments on previous loans in the category of fixed expenses. The Bank of Israel has now ruled that repayments on loans maturing within a year and a half will not be taken into account. Example: A couple earning a combined net income of 15,000 NIS and paying 3,000 NIS monthly for a loan to purchase a new car. If they have more than a year and a half remaining until the loan matures, the maximum mortgage payment will be 6,000 NIS = (15,000 - 3,000) * 50%. If less than a year and a half remains on the loan, the maximum possible mortgage payment is 7,500 NIS = 15,000 * 50%.If a guarantor or additional borrower is involved, only 50% of their income will be taken into account. Borrowers whose income is low relative to the requested mortgage amount may bring in a guarantor or an additional borrower (other than the couple) who, if they co-sign the loan with the couple, will make up for the couple’s shortfall in income. Until now, the guarantor’s full income was taken into account; with the entry into effect of this guideline, only 50% of the guarantor’s income is considered. For example, a couple earning 10,000 NIS and receiving 5,000 NIS from their parents each month wishes to take out a loan with a monthly payment of 6,000 NIS. From the bank’s perspective, the couple’s income is only 10,000 NIS (based on pay stubs). If one of the parents acts as a guarantor for the loan, the couple can increase the possible monthly payment, but not based on the parents" full income—only on half of the parents" income.Clarifications on previous guidelines* Maximum financing rate – The Bank of Israel previously set three tiers for the maximum financing rate on a purchased apartment:First Home – 75% Financing.Home upgraders (selling one apartment and buying another) – 70% FinancingSecond Home – Buying a Home Without Selling the Previous One – 50% Financing.The Bank of Israel is now adding to its directives how the value of the purchased apartment should be calculated. When ordering an appraiser, you receive two prices for the apartment – a regular price and a price for quick sale. This means that if we want to sell the apartment quickly, how much we would need to reduce its price. The Bank of Israel now announces that the value of the apartment for the purpose of calculating the financing percentage is the lower amount between the following sums: the purchase price in the purchase contract and the regular price determined by the appraiser. In the case of an apartment under construction (self-construction or a purchasing group), the value of the apartment cannot include development profit or expected price increases after completion of construction.How to calculate the maximum financing rate when two purchasers (e.g., a married couple) each own a previous apartment? For example, a woman owns an apartment (eligible for 50% financing) and for a man, this is his first apartment (eligible for 75% financing). According to the Bank of Israel, in such a case, eligibility is determined by the weighted average of the two (or more) buyers.A client without an apartment owns a plot of land and intends to build two apartments on it. What percentage of financing can they receive? For one apartment, he can receive 75% in financing, and for the second apartment, 50% in financing.* If a client purchases an apartment for rent, can the bank consider the expected income from rent? Yes. The bank will be able to rely on the expected rental income if these three conditions are met:The borrower stated in writing that he intends to rent out the apartment.The appraiser who values the apartment will also include an estimate of the expected rental income from the apartment.The bank will take a cautious approach and apply a reasonable margin of safety to the appraiser's estimate of expected rental income.* In a mortgage cycle, when the credit increases due to an early repayment fee, does the bank need to recalculate the customer's compliance with repayment terms based on total income? No. If the credit growth stems from an early repayment fee, the loan can be approved without further checks. However, if the client requests to increase the mortgage repayment during refinancing, a re-examination is required to ensure compliance with the customer's disposable income repayment percentage.* When refinancing a mortgage, the terms that applied when the original mortgage was taken out remain in effect. For example: If the original mortgage was taken out with 70% financing, but current guidelines allow the customer only 50% financing, the refinancing will be approved. If the original mortgage was at 100% prime, it will be possible to refinance to 100% prime even though such a new loan is currently prohibited.Attention!Often, you ask a bank teller for something and are rejected with the claim, "We are acting according to Bank of Israel directives." In many cases, this statement is nothing more than a misrepresentation. Bank tellers operate under two sets of rules: Bank of Israel directives and the internal directives of the bank where they work. This means that the Bank of Israel may permit a certain action, but the bank where that teller works does not permit that action. Of course, it is most convenient for the teller to say, "Bank of Israel directives," thereby avoiding an argument and preventing the customer from moving to another bank that permits the same action. In addition, there are cases where tellers simply do not understand a specific directive or do not remember it precisely (they are human, after all). Therefore, it is very important for the customer to be well-acquainted with the limitations and Bank of Israel directives as they appear in the original. You can read here. Bank of Israel Questions and Answers Regarding the Directives You can read here.
Thank you very much, Guy. Reactions like these give me a lot of "fuel" to continue. Pomegranate.Reply
I couldn't find anything on the Bank of Israel website stating that a loan of less than a year and a half would not be taken into account for the repayment ratio.Reply
Hello Omer, thank you. Please read section 1.2 in this document: http://www.boi.org.il/he/BankingSupervision/LettersAndCircularsSupervisorOfBanks/HozSup/h2430.pdfExcellent, it states there that in the calculation of fixed expenses, loan repayments with more than [X] remaining to be paid will be included. 18 months. Good luck, Pomegranate.Reply
Hello, I would be happy to know if the Bank of Israel has issued a directive that a mortgage guarantor must be a first-degree relative (parents, siblings)?Reply
Hello Michal, There is no obligation for a guarantor to be a relative. However, to ease the burden on borrowers, the Bank of Israel issued a directive This enables the bank to recognize a portion of the income of a relative who is a guarantor First-tier installment as borrower's income for meeting the monthly repayment ratio requirement From disposable income. Good luck.Reply
With God's help Fluent and concise writing Nice job!Question:If you want to add additional funds to a mortgage loan, do the financing percentages remain as you wrote them, or do they change? 2. If the purpose of the additional sum is for credit recycling, will the bank settle for this and not consider the existing debt when measuring the customer's repayment ability?Reply
Hello my son, First of all, thank you.1. Second, I’m not quite sure I understand. When you say “add money to the loan,” do you mean making an early repayment or increasing your debt to the bank by taking out another loan? Taking out another loan is only possible up to the approved credit limit (50% for a general-purpose loan).2. An interesting question, I haven't found an answer to it in the records. I assume your description is correct as long as the mortgage cycle is with the same bank that manages the additional loan, and then the bank can repay the loan without your "intervention.".Please note! Increasing a mortgage to cover existing loans without addressing the root causes for taking out those loans in the first place often marks the beginning of a snowball effect and a debt spiral, ultimately leading to a larger mortgage and new loans. Progressing in this direction can be risky.Lots of success.Reply
I didn't understand what the maximum mortgage amount is in the case of a mortgage refinance, in the following example scenario: First and only apartment; originally purchased with a 60% mortgage. We are now considering refinancing the mortgage—so that the new mortgage amount will be higher (70%). Is this possible? Or is it not possible to increase the total mortgage amount (above 60% in this case)?Reply
In my opinion, the meaning of increasing a mortgage is, in the bank's eyes, taking out a loan for any purpose. Such a loan is permitted up to 50% of the apartment's value, so it will likely not be approved. However, apartment prices have been rising sharply in recent years and you may not be aware of the true value of your apartment. The bank's appraiser, who will value the apartment at a higher price, will allow you to increase your mortgage.Of course, before increasing credit, ensure that this credit is intended for investment and not for consumption. Increasing credit Consumption is a big step towards the abyss, even if it seems like the right step economically (reducing interest rates).Reply
Hi, I'd like to ask. Currently, my wife and mother-in-law and I are interested in selling our apartments and jointly buying a villa. Of course, after repaying the mortgages, we will have 1,500,000 ILS left. How to approach getting pre-approved for a mortgage? Looking for a property that matches? And the main question is how the bank treats a mortgage with three borrowers? My mother's past payments have returned. Can this prevent the bank from giving her a mortgage?Reply
Hello Ofir, I'll start from the end; the bank treats three borrowers exactly the same as it treats two borrowers or a single borrower. All three of you will be listed as owners of the apartment and owners of the mortgage. You might want to request an exemption from life insurance for your mother-in-law, as her insurance will likely be expensive., Of course, with an understanding of the risk.It's advisable to start by obtaining preliminary approval. Preliminary approval is valid for three months and shows that the bank will be willing to lend to you. This is especially important given the Sun's problematic past. It would be sad to sell apartments, to go through the trouble of looking, or even worse, signing a purchase agreement, and then discovering there's no preliminary approval. It is advisable to obtain preliminary approval from five banks so that you can negotiate more effectively later on.Good luck.Reply
Hello. I bought a house from a developer and took out a mortgage for 65%. The value of my home has gone up. Can I refinance my mortgage and take out a 65% again???? It should be noted that I have not yet moved into the apartment, and some of the money will go towards paying for the apartment, and the rest of the money for renovation and furniture... Thank you for the answerReply
Hello, In principle, if the bank's appraiser approves the higher valuation, it can be done. It should be noted that the addition to the original loan will be on terms of a general-purpose loan and not on terms of a mortgage loan. The meaning is slightly less favorable interest rates.An additional caveat concerns apartments that do not yet have an occupancy permit. In this situation, banks tend to refuse mortgage modifications.The problem you're describing – a shortage of funds due to poor cash flow planning throughout the project – is a common one. One way to avoid it is to postpone payments to the contractor from the outset, if possible. More on the subject: http://www.effectivemortgage.co.il/515The last remark is, of course, late for you, but I hope it will help others.Lots of success.Reply
Hello, I would like to correct your statement, if I may. A loan for any purpose can be granted as long as the total amount of loans does not exceed fifty percent. One more point, it is not possible to obtain a loan from the bank against a mortgage on an apartment that has not yet been handed over to the buyer (the purchase transaction has not been completed) unless the loan funds are transferred to the seller.Reply
Hello Chen, and thank you for the correction. That's right. The second loan can only be taken out if the home's value has increased enough so that the total debt amount is up to 50%.I would like to correct the second remark – it is incorrect to say "impossible" but rather the bank is generally unwilling to grant it. There is no impediment to increasing a mortgage in this manner. Tevfatot, for example, allows borrowers to hold a credit card with payments for 10 years, with the house as collateral, and this is a mortgage for any purpose that can be used at any time. The credit card is of course just a marketing tool; one can also take an additional loan at once.Reply
HiI looked for references for the explanations you provided here. Can I have a link to the sources?Thank youReply
Thank you Elad, Please http://www.boi.org.il/he/BankingSupervision/SupervisorsDirectives/DocLib/451.pdfReply
Many thanks. I've read it, honestly, a few times, and I have to admit that maybe I don't know how to read it, but I didn't find any reference to the point "how to calculate the maximum financing rate when two purchasers (e.g., a married couple) each own a different previous apartment?" Especially considering that a married couple is usually viewed as a single entity...Reply
The Bank of Israel does not elaborate on this, but is content to state that it Determines for a married couple the ownership percentage of each person according to a tax formula Purchase. Suppose a couple where one owns an apartment before the purchase and the other does not own an apartment. The apartment's value is 2,000,000. The mortgage they can take is: 50%* 1,000,000 = 500,000 (the wife's share) + 75% * 1,000,000 = 750,000 (the husband's share) And together 500+750 thousand.Reply
Hello Rimmon and thank you for the detailed and clear article. We are a couple of students interested in buying an apartment, but since we are currently students, our monthly income does not qualify us for a mortgage. We want our parents to act as guarantors. Under the new guidelines, is their income added to our income for the calculation? Do our parents also need to provide special documentation, and are they required to pay part of the mortgage payments as well? Thank you very much FundReply
Hi Karen, and thank you for your kind words. Parents will need to be guarantors or even additional borrowers (high collateral creates debt). Indeed, 50% of their net income, less their loan payments, if any, will be calculated for the purpose of Checking your repayment ability. Parents will have to pay their share, but this is mainly a formality, as you always have the option Set up a recurring payment from your account to theirs. However, it is unclear what income you will use to pay your parents.Parents will need to bring the same documents that you need: pay stubs, bank statements, excerpts from their property deeds, etc.If I were in your shoes, based on the data you've provided (students, etc.), I would think a few times before buying an apartment.Good luck.Reply
Hi Rimmon, Are rental income from a yield-generating unit that is part of a single dwelling considered for a mortgage? Thank you, YanivReply
It depends. If it's about a apartment you own and you intend to purchase another apartment and at the same time a dwelling unit The conversant was split by law, so the income from it will be counted. If you're talking about a house you intend to build with a dwelling unit, or if there is a dwelling unit. If the legality is in the style of "it's okay here, everyone does it," then it won't be accepted.Reply
Hello. Could you direct me to an official Bank of Israel document that discusses a co-borrower of first-degree kinship?Reply
Hello Sarit, Gladly. See Appendix A in Bank of Israel Directive 329 – Restrictions on Housing Loans – https://www.boi.org.il/he/BankingSupervision/SupervisorsDirectives/DocLib/329.pdf And also procedures for granting housing loans – 451 – https://www.boi.org.il/he/NewsAndPublications/PressReleases/Documents/%D7%94%D7%95%D7%A8%D7%90%D7%94%20451.pdf Good luck.Reply