By: Yair FischmanMarch 2013

JYFischman@gmail.com

Mortgages in Israel:The Basics

Mortgages in Israel 2

₪

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

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₪

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!!!

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

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

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.

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%

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.

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.

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.

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%

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

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

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

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