While the very basic principles of mortgages are the same in most countries, important details can vary widely. When compared with a US mortgage, many aspects of a mortgage in Israel seem strange and counterintuitive. Here are the significant differences you’ll have to be aware of.
1. Available Financing
One of the most significant differences between getting a mortgage in Israel and US mortgages is how much financing is available. In the United States, there really isn’t any rule about how much of the home can be financed. Convention dictates a 20% down payment, but this can regularly be as low as 3.5%. In some cases, no down payment is required, and the entire value of the home is financed.
In Israel, this is entirely different. Residents can only finance up to 75% of the property value through a mortgage, requiring an absolute minimum down payment of 25%. For non-residents, financing can only cover 50%. These requirements are much stricter than those in the US and can be even more restrictive when considering that these percentages are of assessed property value, not purchase price.
2. The Bank’s Responsibilities
When taking out a mortgage in the US, your bank will readily handle essentially every aspect of your mortgage. They’ll make it as easy as possible for you to get your mortgage and start making payments. The same is true in Israel, but there are some rules that make it more difficult for them to handle everything.
There’s a lot of groundwork to cover yourself if you’re getting a mortgage in Israel. You can’t just rely on the bank to do everything. You’re going to have to submit notice to the proper authorities and bring paperwork to several different offices. Where banks can handle this in the US, you’ll have to reach out to a private mortgage broker for help in Israel.
3. Interest Rates
Interest rates are some of the most complex things to work out for your mortgage. They can fluctuate significantly over the course of a mortgage, and there are many different approaches. In Israel, you need an effective mortgage plan to get the best interest rates throughout this process.
In the USA, fixed-rate mortgages are nominal, meaning they aren’t affected by inflation or other factors. In Israel, many mortgages have real interest rates. These real interest rates are adjusted for inflation, much like the term “real GDP.” If inflation rates were to increase, this could drastically affect your mortgage in Israel.
Israel and the US take different approaches to how they protect consumers. In general, Israel has more restrictive rules about what lenders can and can’t do. In the US, lenders can do much more but have strict requirements for disclosing more information due to the Truth in Lending Act, among others.
What this means is that mortgage providers in the US must provide comprehensive information to all consumers. Borrowers in the US will have very clear information on how high-interest rates and payments can go in various situations and how this will affect their mortgage. Israel, on the other hand, has relatively few consumer disclosure regulations.
5. Rate Adjustment Caps
Adjustable-rate mortgages have interest rates that change over time following market fluctuations and prime lending rates. They’re generally lower than fixed rates because you never know if they could increase in the future. The main difference between how US and Israeli mortgages handle these adjustable rates is with rate caps.
In the US, rates can only be adjusted by a certain amount during each individual adjustment. There are also limits for increases throughout the mortgage. However, a mortgage in Israel has no such rate caps. Borrowers can’t be sure that they’re going to be locked into rates as they would in the USA, and that’s why every Israeli mortgage needs a professionally prepared mortgage plan.
Don’t Miss Any Details With a Private Mortgage Advisor
As you can see, getting a mortgage in Israel is quite different from taking out a US mortgage. Navigating these differences takes professional skill, and you need a private mortgage advisor for that. A professional mortgage advisor like Even Sapir provides more significant services in Israel than similar roles in the US, helping you put together your mortgage plan and ensuring you get the very best terms.