For most of us, purchasing an apartment and taking out a mortgage loan is one of the most significant business moves we will ever make. Correspondingly, the fears and deliberations that accompany this kind of decision are considerable. There are many details that we need to know, some of them quite crucial.
We are interested in purchasing an apartment. The purchase price is one million shekels, but we only have about 400,000 ILS. Can we get a mortgage loan through the bank?
The optimal mortgage terms offered by the banks are for clients who pay at least 40% in personal capital. Nevertheless, the banks do still approve loans with a higher financing rate tailored to each borrower and his personal situation, down to a minimum 25% personal capital only. In your situation, you have about 40% of the necessary funds for purchasing the apartment. That means that you can receive the mortgage loan with the best terms possible. Yet even if you had less than 40% of the required amount you would still be able to receive up to 75% of the apartment’s cost, for less advantageous terms.
We received an apartment from our parents. The apartment is not mortgaged. A friend told me that I can purchase another apartment without investing any personal capital at all. How do I do that?
One can mortgage one property for the purpose of purchasing another property. Since as previously stated, a mortgage can be taken out for at least 50% of the property’s value, receiving 50% of the existing property plus an additional 50% of the property being purchased will in most cases completely cover the costs of the new purchase. The bank will obviously condition this loan on your ability to repay a loan of this size.
We are in the process of constructing our home and the construction is commencing in stages. Does the bank give the contractor all the money immediately?
The bank will pay the contractor according to the engineer’s or project manager’s reports as to the progress of construction. You must remember that the bank will not rush to increase the mortgage if the initial estimate of the construction costs turns out to have been too low, as sometimes occurs when building independently. Therefore, it is important to make sure that the estimate of all construction costs is as accurate as possible, take some safety margins for price increases into consideration, and do not allow yourself to be tempted into any extra expenses until receiving the entire mortgage loan.
I’d like to repay my mortgage loan as soon as possible. My parents are helping us, so we can repay about 5,000 ILS every month, while our joint salaries are about 10,000 ILS. Is it true that the bank only approves loan repayments of up to one-thirds of the borrowers’ income?
As a rule, yes. But the algorithm in the bank’s computer also enters other data when calculating the available income, such as the number of household members and the income level. In reality, each case is examined individually. You can also send us such questions and receive specific advice free of charge.
Our income is thankfully high but over the last two months we have gone over our overdraft limit due to our daughter’s wedding expenses. Is it worthwhile applying for a mortgage loan just now?
First of all, allow me to extend my warm wishes to you upon your daughter’s marriage. As a rule, it is best to apply for a mortgage loan following at least three months of your account being “organized” and reflecting your true financial situation. However, when the overdraft is indeed temporary, you can point that out to the bank and the single occurrence should not harm your mortgage approval.
Other than the interest, are there any other fixed expenses related to the mortgage?
Besides for the monthly repayments, borrowers need to pay a premium for mortgage and property insurances. The cost is relative to the cost of the purchase and the insured’s age. In the mortgage insurance world, too, there is strong competition and we highly recommend conducting a thorough market research before selecting an insurance company. We are currently in the midst of negotiations with a large and reliable insurance agency so that we can begin to regularly offer our clients insurance policies for the best prices.
We met with the banker, and he seemed pleasant and reliable. Why shouldn’t we handle the mortgage process on our own and spare the consultation costs?
As explained in our “Mortgage Costs” article, the banker may indeed be pleasant and professional. However, you must remember that he does have profitability goals and that inevitably, your own interests of saving money conflict with the interests of the bank, which the banker is representing – and that is to maximize profitability. A mortgage consultant, on the other hand, is a person who has professional expertise similar to the banker’s, but who is acting solely to promote your goals – saving on the mortgage costs and adapting it to your personal needs.
How much can we save already on the mortgage? After all, it isn’t a loan with interest rates such as a regular commercial bank loan!
Indeed, the interest rates on mortgage loans are lower than those of other types of loans provided by the banks. However, due to the high loan amount and the extent of time over which the loan is to be repaid, choosing the wrong plan and failing to haggle over the interest rates will lead to unneeded expenses that are, on average, tens of thousands of shekels higher!
Can you explain to me in short how this saves tens of thousands of shekels? Will I not receive the same results as you by obtaining a number of offers from different banks?
This is an excellent question. Indeed, the more effort you invest into comparing between the banks, the more money you will end up saving on your interest rates. However, as we wrote in the “Mortgage Costs” article, the mortgage bankers are smart, pleasant, and convincing. But more importantly – they are not on your side. They need, based on the goals set to them, to sell the plans that are most profitable for the bank. They may bring you to think of directions that you had not considered before (and, coming from them, will sound relevant even while they may not, in fact, really be), and these will serve as your anchor points when comparing interest rates. And so, while the diligent consumer is (rightfully!) happy that he had succeeded in lowering the interest rates from the first offer provided by the bank, he does not have the tools to know what margins the bank really had for each plan, and whether these were the best plans and most appropriate structure for his needs.
Furthermore, even the best interest rate obtained through such “market-making” will generally still be higher than those a consultant will receive, due to his insider’s knowledge of the bank’s reduction capabilities and his client mass. This difference is worth tens of thousands in small loans, and hundreds of thousands in larger loans.
Why is it better to use the services of a boutique firm such as yours and not one of the larger companies in the consulting market?
The supposed advantage of the larger companies is the large client base that they bring to the banks and the banks’ readiness to improve the clients’ terms as a result. Due to the tremendous competition between the mortgage banks, we enjoy the same kind of attitude and willingness from the banks, who realize that a good relationship with the firm translates into additional clients.
Yet another advantage is our experience as professional bankers, which provides us with close familiarity with the mortgage banking system; a familiarity that we utilize for our clients’ benefit. Many advisers in the large firms are legal experts, accountants or economists who are knowledgeable in finance and economy, but are not familiar with the different banks’ profitability structures and cannot use this professional knowledge for their clients’ benefit.
And one more important point: To date, there is no supervision over the field of mortgage advising. A large percentage of the advising agencies in the market are comprised of freelancers who are not bankers, who exploit the clients’ ignorance, charge high fees for their services (sometimes amounting to tens of thousands of shekels), while in fact not assisting the clients any more than providing an interest comparison which any client could perform on his own. A significant part of our clientele has come to us after experiencing disappointment from previous “professional advice” given to them. Sometimes, all that remains for us to do is to minimize the damages.
We established our business with G-d’s help when, through our work at the banks, we saw how borrowers were paying hundreds of thousands of extra shekels for the apartment they had purchased, and we decided to share our knowledge and connections and assist families in saving this money, which can be channeled instead to more important purposes such as education and marrying off their children. Every file is the result of many hours of professional and creative deliberation, to save as many repayment years and as much money for the borrowers as possible.
Essay written by Moshe Tobolsky
Mortgage Expert