by: yair fischman march 2013 [email protected] mortgages in israel: the basics 1mortgages in...
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Mortgages in Israel 2
₪
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Costs of Mortgage Upfront• 30% deposit.• Opening a File (Tik)
– Bank: 1. 0.25% of mortgage. 2. About 200 ₪ for registering property and other
fees.
– Broker: 1. 1% of mortgage (negotiate).
• Life Insurance for value of Mortgage.• Property Insurance • Property Assessment: 330-600₪ for less than 2,000,000₪
• Engineer
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Cost of Mortgage Per Month: Spitzer
100,000 ₪ 15 Years 20 Years 25 Years 30 Years
3% 690₪ 554₪ 470₪ 421₪
4% 740₪ 605₪ 527₪ 477₪
5% 790₪ 660₪ 584₪ 536₪
6% 843₪ 716₪ 644₪ 600₪
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Interest Rates
Fixed Rate Linked to an Index1. Prime (P-0.95% for 25 years,
August 2012 2.85%)2. Ogen Makam Israel Bonds
(M+1%, August 2012 2.9%)3. Madad- Inflation in Israel (2-3%+
Madad)4. Foreign Currency Loans i.e. $, €,
£, ¥... Libor Index (L+2%, Feb. 2013 2.63%)
5. Other indexes
• Fixed rate for life of loan and not linked to any index.
• 5.0% for 25 years (July, 2012)
• 5.5% for 25 years (May, 2012)
Note- All numbers are for 25 year loans. - Only Fixed and Prime Rates are
negotiated rates. - Negotiate!!!
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Interest Rates: Negotiated July 2012
Fixed 25 yr
Prime 30yr
Ogen M
akam 1yr
Ogen M
akam 5yr
Dollar Loan (Lebor)
Madad 1yr
Madad 5yr
Madad Fixed
0%1%2%3%4%5%6%
Quote Without Negotia-tionsPlus MadadWith Negotiations
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Comparing Fixed and Index Linked Mortgages
Fixed Mortgage Index Linked MortgagesBenefits Draw Backs
• Rates are low (approx. 3%).
• Rates change periodically.
• No interest penalty to pay off early (approx. 60 ₪ fee).
• Subject to drastic market fluctuations.
Benefits Draw Backs
• Monthly payments never change.
• Higher monthly payments.
• Interest rate never changes.
• High interest rate (5+%).
• Safe from market fluctuations.
• Interest penalty for paying off early if rates fall.
• Budget
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Payment SchedulesType of Payment Plan
Payments: Early years
Payments: Later years
Cost over time
Conclusion
Keren Shelah Interest is proportional to principal.
Smaller principal means lower interest costs.
Goes down
Expensive early on, but it is the most cost effective.
Spitzer Mostly interest. More and more principal.
No change
Most loans
Madad Mostly fixed interest.
Principal and Madad.
Goes up Cheap now, but very costly later on.
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Madad Mortgages: 3 Parts1. Payments on principal.
Unpaid interest on Madad add to principal.
3. Payments on Madad.
2%-3% annual target for inflation.
Madad Index can rise 5+% in a year.Interest payments on Madad are spread over the course of the loan.Monthly payments rise slowly.2. Payments on stable
interest1.5%-3.3%
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Comparison: Madad & Prime
Prime Madad
100,000 ₪ loan 20 year loan 20 year loan
1% rise in interest 1,000 ₪ total cost 1,000 ₪ total cost
Effect on monthly payments
1000/12 months = 83₪
1000/240 months = 4 ₪
Change in monthly cost after a rise in interest.
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Madad Mortgages: ConclusionFor a 25 Year mortgage
• After 5 years you may still owe as much in principal as you borrowed.
• Payment schedules are designed so it can be 7-15 years before the principal+ Madad goes down.
• Monthly payments rise slowly but steadily.• After 7-12 years total payments may be equal or greater
than monthly payments for fixed rate mortgages.• After 15-20 years mortgage payments may double.• Think twice.
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Prime & Makam Linked MortgagesPrime & Makam Mortgages Differences Between Prime and
Makam Linked MortgagesPrime Makam
Payments change every month relative to changes in Prime index.
Market changes effect payments once a year or once every 5 years.
Slightly more volatile than Makam.
Generally follows trends of Prime Index.
Limited to 30% of Loan. No limit to portion of loan.
No set interest rate available.
Available with set interest for 1, 5 or more years.
Length of loan does not change rates much.
Length of set rate effects rates greatly.
Advantages Disadvantages
Low rates (around 3.6% -.9%= 2.7%).
5+ years ago the rate was about 5-10%
Principal goes down every month.
Payments fluctuate relative to changes in the index.
About 60 ₪ fee for early payment.
Interest rates can fluctuate greatly.
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Mortgages in Israel 13
Madad (CPI) Index 1998-201319
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
13
-2%-1%0%1%2%3%4%5%6%7%8%9%
10%11% Madad Yearly Change
Average change of 3% over last 18 years
Source: Central Bureau of Statistics http://www1.cbs.gov.il/reader/prices/price_main_division_e.html?MainDivision=a&MyMonth=1&MyYear=2013
Madad/ CPI Yearly Change
1998 8.6%1999 1.3%2000 0.0%2001 1.4%2002 6.5%2003 -1.9%2004 1.2%2005 2.4%2006 -0.1%2007 3.4%2008 3.8%2009 3.9%2010 2.7%2011 2.2%2012 1.6%
Jan-13 -0.2%
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Prime RateFeb-13 3.3%Dec-12 3.47%Dec-11 4.25%Dec-10 3.50%Dec-09 2.50%Dec-08 4%Dec-07 5.53%Dec-06 6.44%Dec-05 5.98%Dec-04 5.39%Dec-03 6.70%Dec-02 10.56%Dec-01 6.85%Dec-00 9.67%Dec-99 12.67%Dec-98 15%
Source: Bank of Israel http://www.boi.org.il/
Prime Index (1998- 2012)
Mar
-13
Dec
-12
Dec
-11
Dec
-10
Dec
-09
Dec
-08
Dec
-07
Dec
-06
Dec
-05
Dec
-04
Dec
-03
Dec
-02
Dec
-01
Dec
-00
Dec
-99
Dec
-98
-1%
1%
3%
5%
7%
9%
11%
13%
15%
Prime Rates in December
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15
Makam 1 Year (Israeli Bond) Index 3/1998- 3/2013
19982000
20022004
20062008
20102012
0%1%2%3%4%5%6%7%8%9%
10%11%12% Makam Yearly
Averages
1998 11.36%1999 11.40%2000 8.80%2001 6.50%2002 7.41%2003 6.93%2004 4.78%2005 4.33%2006 5.53%2007 4.34%2008 3.88%2009 1.40%2010 2.19%2011 3.04%2012 2.23%
Mar-13 1.70%
Mortgages in Israel
Makam Yearly Averages
15 year average 5,56%
Based on Averages From: http://www.boi.org.il/he/dataandstatistics/pages/seriessearchbysubject.aspx?Level=3&sId=41
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Mortgages in Israel 16
LIBOR (London Interbank Offered Rates) 1998-2013D
ec-9
8
Dec
-99
Dec
-00
Dec
-01
Dec
-02
Dec
-03
Dec
-04
Dec
-05
Dec
-06
Dec
-07
Dec
-08
Dec
-09
Dec
-10
Dec
-11
Dec
-12
Feb-
13
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2.96% aver-age in last 15+ years
LIBOR IndexDec-98 5.2%Dec-99 6.5%Dec-00 6.0%Dec-01 2.4%Dec-02 1.4%Dec-03 1.5%Dec-04 3.1%Dec-05 4.8%Dec-06 5.3%Dec-07 4.4%Dec-08 2.3%Dec-09 1.0%Dec-10 0.8%Dec-11 1.1%Dec-12 0.8%Feb-13 0.8%
Source: http://www.fedprimerate.com/libor/libor_rates_history.htm
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Mortgages in Israel 17
Indexes Compared: Yearly Averages19
98
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
LIBOR (Dec.) Prime MAKAM 1 yr. MADAD