A comprehensive guide
The Complete Mortgage Guide
Everything you need to understand before approaching a bank - what a mortgage is, how the process works, which tracks exist and where people most often go wrong.
What exactly is a mortgage?
A mortgage is a long-term loan granted against a lien on a property - usually the apartment you buy with it. The bank lends you a sum of money, and in return registers a lien on the property: as long as the mortgage has not been fully repaid, the property cannot be sold without the bank's consent. You repay the loan in monthly payments that include both principal and interest, over a period that can reach 30 years.
For example: a family buying an apartment for NIS 1,500,000 with NIS 500,000 of equity (about 33%) will take a mortgage of NIS 1,000,000 for the remaining amount. The loan-to-value ratio in this case is about 67% of the property's value - a figure that directly affects the terms the bank will offer.
The stages of the process, from application to keys
- 1
Setting a goal and a budget
Before looking for an apartment, set a realistic budget: how much equity you have, and what price range fits a monthly payment that is comfortable to live with - not just the maximum the bank will approve.
- 2
Checking repayment capacity
You check against your income and existing obligations what the realistic monthly payment is, and get an initial estimate of the possible mortgage amount (see the affordability calculator).
- 3
In-principle approval from several banks
You apply to several banks in parallel, not only to the bank where your account is held. An in-principle approval is a starting point for negotiation, not a final offer.
- 4
Choosing a property and appraisal
Once there is a clear budget, you go out to look for a property. The bank sends an appraiser on its behalf to estimate the value of the property and make sure it matches the requested financing amount.
- 5
Building the final mix
At this stage you choose the combination of tracks - fixed, variable, CPI-linked - according to the balance of risk and stability that suits you, and negotiate the interest rate with the banks.
- 6
Signing, registration and handover
After final approval you sign the mortgage documents, the attorney registers a caveat in favor of the bank, and the money is transferred to the seller. From there - receiving the keys.
The main mortgage tracks
Fixed non-indexed track
A fixed rate throughout the term, with no CPI linkage. The monthly payment is known in advance and does not change - maximum stability, but usually at a higher starting rate than the other tracks.
Fixed CPI-linked track
A fixed rate, but the principal is linked to the consumer price index - so the monthly payment changes with inflation, even if the rate itself does not move.
Variable track (usually every 5 years)
The rate is updated every few years according to market conditions. Usually cheaper at the start, but involves uncertainty about the future payment.
Prime track
Linked to the prime rate (Bank of Israel rate + 1.5%) and updated with every change in the rate. See our prime rate page for the current figure.
Most mortgage mixes in Israel combine several tracks, to balance stability in the monthly payment against a lower overall cost. The right combination depends on your goals and your tolerance for risk - which is exactly the work of a mortgage advisor.
Which documents to prepare
- Pay slips for the last 3 months (for employees) or accountant's reports (for the self-employed)
- Bank account statements for the last 3 months
- Confirmation of employment or seniority at work
- Proof of the sources of your equity (savings, a gift from parents, sale of a previous property)
- ID card including the appendix, and for married couples - also a marriage certificate
- A purchase contract or memorandum of understanding for the property (at a more advanced stage)
Common mistakes worth avoiding
Choosing a track by the lowest payment today
The cheapest track at the start is not always the cheapest over time. Check the total overall cost, not only the initial payment.
Approaching only one bank
Every bank prices risk and interest differently. Without a parallel comparison between several banks, it is hard to know whether you got the best terms.
Opening new loans close to the mortgage application
Every new financial commitment affects the payment-to-income ratio the bank checks, and may reduce the approved mortgage amount.
Ignoring related costs
Purchase tax, attorney fees, brokerage and appraisal are added to the price of the apartment - see the purchase costs calculator to plan an accurate budget.
Not checking refinancing after a few years
Market conditions change, and so does your financial situation. A mortgage taken a few years ago is worth checking from time to time - it is a risk-free check.
Basic glossary
- Lien (shiabud)
- Registration of the bank as a right-holder on the property until the mortgage is fully repaid. It prevents selling the property without the bank's consent.
- Caveat (he'arat azhara)
- A land-registry (Tabu) entry notifying any third party that a transaction or lien is in process on the property, usually in favor of the lending bank.
- Loan-to-value ratio (LTV)
- The mortgage as a percentage of the property's value. The higher the LTV, the greater the risk from the bank's point of view - and usually the interest rate as well.
- Early repayment fee
- A fee the bank charges when a mortgage (or part of it) is closed before the end of the original term, mainly on fixed-rate tracks.
- Construction input index
- An index published monthly by the Central Bureau of Statistics, to which payments to a developer are linked when buying an apartment from a developer.
- In-principle approval
- A document from the bank that provisionally approves a financing framework, before a specific property has been found or the appraisal has been completed.
Frequently asked questions
How long does the whole process take, from application to receiving the money?
On average between one and two months, depending on the load at the banks, the complexity of the file and the availability of documents. A file that is organized in advance shortens this significantly.
Is it better to take a mortgage from the bank where my account is held?
Not necessarily. Each bank prices differently, and sometimes another bank offers better terms. A mortgage advisor compares several banks in parallel.
How much equity do you need to get a mortgage?
The maximum financing ratio is set by the Bank of Israel and depends on the type of apartment (single, additional, investment). At least 25%-50% equity is usually required, depending on the case.
Does a mortgage advisor cost money?
The initial consultation with us is free and without obligation. The advisory fee, when there is one, is payable only after the mortgage has actually been approved on improved terms.
What happens if I was refused by the bank?
A refusal is usually the result of a specific criterion and not a final verdict. See our page on handling complex cases for more information.
Want to follow this guide yourselves, but with someone who checks every step with you? That is exactly the work of Shmuel Safanyayev. You can also start with the mortgage calculators.
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