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In which currencies are mortgage loans available? |
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One of the major questions in the purchase of real estate in a foreign country is the availability of financing. For the purchase of real estate in Israel, mortgage financing is available both in Israeli shekels and most major world currencies. |
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In which currency should I take my mortgage? |
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The primary consideration as to which type of financing to take is simple; in what currency does the borrower have sufficient income to repay the loan. By borrowing in the same currency as his/her income, unnecessary bank charges and currency conversion fees are avoided. |
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What are Israeli shekel mortgage loans like? |
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Israeli shekel loans come in a diverse variety of ''flavors'' today. They may carry a fixed or adjustable interest rate. Payback terms may vary from 15-25 years. One unusual addition to loan repayments is a `linkage` component in addition to principal & interest. This linkage component is based on increases in the Consumer Price Index. This component is a holdover from the 70`s and early 80`s, when Israel experienced triple-digit hyperinflation, and some form of linkage was necessary to protect lenders. Over the past 10 years, both the shekel and price index have remained relatively stable, so while the additional cost of repayment isn`t overly burdensome, borrowers should be aware that it does exist, and that it will increase the amount of the payback of the loan. |
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How much financing can I get toward my purchase? |
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The answer to this question has changed over time. Historically, between 50-60% of the value of the property could be borrowed, requiring buyers to have a significant down payment out of their own pockets. It is now relatively common to obtain 70% financing. With the addition of private mortgage insurance, up to 90% financing is available. |
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What rate of interest can I expect to pay? |
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Foreign currency mortgages generally carry interest based on
the 90 day London Interbank Overnight Rate (LIBOR), plus a premium of approximately 2.25%. Individual rates will depend on the borrower`s particular situation, and preferential rates are available for more credit-worthy borrowers. |
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How frequently must I make my payments? |
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Generally, payments on foreign currency loans are required quarterly instead of monthly. Payments also include level principal reduction, which results in lower interest cost to the borrower over the life of the loan. Shekel loans are generally repaid monthly. |
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Is any insurance required in connection with the loan? |
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Yes, generally insurance on the property itself is required as a condition of the loan, and sometimes, life insurance on the borrower as well. Most lenders offer competitive pricing on these products, but the borrower is free to obtain coverage independently if he so desires. |
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