Chances are, the mortgage will be the most significant loan you take out in your lifetime. The structure of the loan, the calculation methods, the multiplicity of programs, the proposed routes and its behavior depend on a huge variety of rational and emotional data and variables, but mainly financial, which will not always be exposed and known to you when making the decision.
Paamonim reports that over the years of the organization’s activity, the most significant and painful component of most families who have sought assistance is the difficulty in paying their mortgage. Tens of thousands of families who have been assisted by Paamonim so far have taken upon themselves a long-standing commitment, even though they did not know how they would meet it. “When this fixed expenditure exceeds the family’s abilities and income, it does not allow them to live a peaceful and balanced life,” says Uriel Lederberg, CEO of Paamonim. Based on many years of experience in the field of proper management of the family’s finances, Lederberg seeks to show responsibility. “I would like to appeal to all families who are considering taking out a mortgage, do so cautiously, conservatively and mainly out of responsibility. We are confident that the responsibility required at this stage pays off and enables quality of life throughout life.”
Zvika Cohen, a consultant at Meitav Dash Mortgage Consultants at Meitav Dash Investment House, explains that families in Israel must make a significant change in their perception when it comes to mortgages. “The Israeli public believes that a mortgage is a financial shelf product marketed by the banks and that the differences between mortgages, in tracks or in one bank or another, are negligible and superficial. In practice, there are more than fifty different mortgage tracks and all of them are offered by banks in Israel. Therefore, the mix of mortgages, their layout and structures, can be different and varied, and the implications derived from this reach hundreds of thousands of shekels.”
Zafrir Aqab, CEO of Ein Tzofia Economic Consulting, serves as a mortgage consultant at Paamonim, dividing the mortgage taking out intothree simple steps:
Step one: Examine your
repayment ability
, i.e. how much money you can repay each month for mortgage repayments.
Step Two: Build your mortgage mix based on your repayment capacity and find the amount you can apply for as a mortgage.
Step Three: Combine your equity with the amount you can receive as a mortgage, and you have your budget for buying an apartment.
“Now go outside and look for an apartment in your budget,” recommends Zafrir, “The right mortgage advice is one that will help you find the right mix even before you purchase the apartment. After you’ve taken out the wrong mortgage, all that’s left is to minimize damage.”
So how do you do it? Paamonim, in collaboration with Meitav Dash Mortgage Consultants, explains how to prepare for taking out a mortgage, what you should watch out for and what should be taken into account.
Guide to the Residenceof the
1. How do you find the arms and legs?
Buying an apartment is an exciting event and when we are excited it is hard for us to be calculated. Moreover, when we do get into the thick of what is happening when choosing a mortgage, we are preoccupied with amounts, expenses, income, consultants, suppliers, numbers and foreign words, and dozens of data and variables. Therefore, when we arrive at the bank, we want to keep the picture simple and clear and know how much we will pay per month and during what period. It is also recommended to know what the interest rate is.
It is possible to lower the level of concerns by examining the mortgage in a reasonable scenario, an optimistic scenario, and a pessimistic scenario. This way, you will know exactly what your mortgage will look like today and what it might look like in the future, and in this way you will reduce uncertainty and surprises.
2. How much money do you need exactly?
The price of the apartment is the accepted basis for taking out a mortgage, but the expenses involved in purchasing an apartment are at least 10% greater than its price. To the listed price must be added taxes and fees, attorney and realtor fees (if any), renovations, accommodations and more.
Before coming to the bank with a mortgage requirement, it is worthwhile to calculate the total cost of purchasing the apartment and entering it, and based on this figure and the existing equity, decide what mortgage amount is requested. Otherwise, you may find yourself with inflated overdrafts and heavy debts that won’t allow you to make ends meet.
3. Is there room for comparison?
Most Israelis think they conduct market research before signing a mortgage at one bank or another. In fact, most of us hear a completely different mortgage offer at each of the banks, with the only basis for comparison being in most cases the amount of the monthly repayment and sometimes also the repayment period.
In practice, the offers we receive at the banks are fundamentally different from each other, because each of them creates a completely different mix between the tracks. Most of us do not have the ability to compare the mixes and therefore the market survey we do is inefficient and does not contribute to making an informed decision in most cases.
4. The relationship between the mortgage, salary and credit card
In most cases, the mortgage repayment is calculated according to the monthly salary or total monthly income, as of the date the mortgage is taken. In practice, in the usual optimistic scenario, monthly revenues should stabilize or increase. On the other hand, expenses will change over the life of the mortgage: children will join the family and you will incur heavy expenses. To the expected expenses must be added the unexpected expenses that always land on us, especially if we are preparing for a long period of 25-30 years.
Therefore, when taking out a mortgage and determining the amount of the monthly repayment, check not only your income now and in the foreseeable future, but also what are the expected and unexpected expenses for the entire repayment period of the mortgage.
5. How you grew up! I’ve known you since you were so little…
It’s true that interest rates are lower today than ever, but it’s clear that the situation won’t stay that way forever. For example, the prime interest rate today is 1.6% (3/2015), but only a few years ago it was 5.75%. This is a huge gap that has very serious economic implications for our ability to meet mortgage payments. It is reasonable to assume that a mortgage based on variable rate tracks will allow you to enjoy low repayments due to the current interest rate, but it must be remembered that exposure to interest rate volatility may change the picture completely.
