This weekend, I received an email that contained several common mistakes that many people make:This email proves to me (again) that I still have a lot of work ahead of me and a large public that would benefit from increasing its knowledge base.The results of ignorance on this matter can be devastating to the family's financial life.Let's return to this client, whom for the sake of example we will call Mr. Israeli.Mr. Israeli believes there are two main problems related to mortgages:Will I be approved?How can I get the best interest rate?Regarding the first question: Will they approve me? Dear Mr. Israeli, when you go to a used car dealership to trade in a car, do you ask yourself, "Will the seller approve me?" Of course not. You know that if you show the money, the seller will approve your purchase of the car and even thank you at the end of the deal.Bankers aren't so different from used car salesmen. You show them that you have good collateral (an apartment for which you’ve already paid 25% of the purchase price) and a reasonable chance of repaying the mortgage, and the bank approves it. In fact, I see many clients whose banks approve deals where, in my opinion, the likelihood that the loan will be repaid in full is very low. Why does the bank approve these deals? Why not, really? The bank knows that if the client can’t pay the mortgage payments in 10 years (the banker "forgets" to mention that the payment could double in a decade with a bad mortgage), the bank can sell the apartment. Even if its value doesn’t increase at all, the mortgage is at least 25% lower than the apartment’s purchase price.The bank, for its part, encourages the feeling of doubt about the transaction's approval. This way, the customer feels grateful to the clerk who "arranged approval for him," and avoids a real negotiation.The second topic where Mr. Israeli errs above is when he thinks that getting the best terms is the most important thing. The most important thing is the mortgage mix. Improving the mortgage terms for a specific mix can save thousands of shekels. Improving the mix can save tens of thousands of shekels. Let's go back to an Israeli at a used car dealership. Would it occur to him to go to a dealership, hear from the seller that he has a Mazda 3 with 150,000 km for 80,000 NIS, and purchase the car without checking the price at other dealerships or for other cars? If so, why is it that when it comes to a deal where the damage could be 10 times greater than the damage of overpricing a car, Mr. Israeli doesn't think he needs to check the competitors' terms? Moreover, this is a market. When the seller knows you haven't received other price quotes, his price quote will be much higher.The mortgage market is like any other market. The seller (some call them mortgage consultants) gives you a high price, and only when they hear from you that competitors have other offers do they improve their offer.To Mr. Israeli's credit, one thing should be noted. Very big Mr. Israeli understood that he didn't understand everything and chose to seek advice. Therefore, his family's future is expected to be different from the future of many families who make the above mistakes without choosing objective advice on such a significant matter. In summary The bank isn't doing you a favor by approving your mortgage. You are doing the bank a favor. When you are ready to pay him tens/hundreds of thousands of shekels in interest over the coming years. Approach the bank from a position of strength, not weakness. The first quote is bad. Improving it is achieved by competing with other banks. Always start the process with all the banks. The interest rate terms for a particular track are not economically significant. The type of track (mix) is what's important. You can read more about mortgage myths in an interview with me for the "Globes" newspaper – click here to read
It all depends on how much he measured construction input costs versus the mortgage interest rate, including compound interest. In another article, they showed construction input costs were high for 30 months and the mortgage interest rate was low, and their calculation came out to the exact opposite. http://www.globes.co.il/news/article.aspx?did=1000727861Reply
Hello Dana, It appears the summary calculation is incorrect. A. It is not specified what the benchmark is for the calculation period, and accordingly, the return that could have been obtained on our money had we chosen to pay the contractor upon occupancy (a return of 240K for two years) was not taken into account.B. If the construction input index is 4%, it is unlikely that the non-indexed interest rate would be only 3%. It is a pity that the author of the article did not specify which years the data were taken from, or whether he made them up for the purposes of the example (which, as mentioned, is not really realistic).C. The statement that if there is a lending bank and a sales law guarantee, the risk is small, is incorrect. The bank has a legal department whose job is to ensure that the bank only pays if all else fails. This could mean years of court proceedings. For proof, the buyers of Gindi's "flying balconies" did not get their money back even two years later, despite it being hard to imagine a greater breach of contract.When there are two advisors on the same topic with opposing views, I tend to favor the one whose advice goes against their personal interest. has a higher weight. For example, a mortgage advisor is clear Good luck.Reply