Planning for your new mortgage in Israel
Are you planning to purchase a new apartment in Israel?
Buying an apartment is an important step that requires a lot of deliberation and decisions that are not so simple. However, financial planning for purchasing an apartment is an important step in the decision process.
Before making the decision regarding purchasing an apartment here are a few points to consider:
- We recommend that you prepare a financial plan to help you make the decision regarding obtaining a loan.
- The financial plan places significance in checking the expenses required in purchasing an apartment taking into account the purchase price of the apartment and other costs such as tax, valuation fees and legal fees.
- The plan should also include your financial resources at your disposal.
- It should also include details of your current income (whether it be by way of salary, dividends, rental income etc.) and your projected expected income (including the rental income of your new apartment in Israel, if applicable) during the loan period.
- This data can help you in calculating the amount of the required mortgage, choosing the most appropriate type of mortgage for you and in estimating your ability to make the monthly payments.
Mizrahi Tefahot Bank recommends that you make an initial financial plan and submit a request for a mortgage before finding an apartment or if one has already been found, before signing the purchase agreement. The submission of a mortgage application form, if acceptable to the bank, will enable you to receive an offer letter for the amount you need in advance. This will enable you to target apartments within a certain price range with an affordable mortgage.
How to Make a Financial Plan
Calculating the value of the apartment and the expenses required in purchasing it.
It is recommended to:
- Check the land tax rates (betterment tax, purchase tax, and sales tax), real estate agents fees, additional expenses (such as maintenance) and fees for a lawyer handling the transaction.
- Check the financial resources at your disposal for financing the purchase transaction, excluding the mortgage (sale proceeds from your old apartment, help from parents, savings, loans etc.).
- Take into account current/future income from all sources (salary, pension, interest, dividends, rental income etc.). This will make it easier to choose an affordable mortgage that is right for you.
Calculating Monthly Payments
The next step after determining the value of the apartment and setting a mortgage amount is deciding the type of mortgage that is appropriate for your needs and financial capabilities (calculating the monthly payment). It is possible that after the financial planning as described above is completed, it will be clear that it would be better to consider another purchase, a cheaper one, or to change the mortgage components and its terms (for example, to shorten or lengthen the mortgage).
The monthly payment amount in relation to Income.
The affordability of the monthly payment amount of the mortgage depends on several factors, such as:
The amount of net income in the household.
The total expenses of the household.
The number of children.
Surety of income.
Other factors which will be identified based on your personal circumstances.
The bank will only approve the mortgage after checking your personal details when submitting the request for a mortgage.
Financial planning for purchasing an apartment
Purchasing an apartment is one of the most important and significant decisions in our lives. Whether referring to a new apartment or a second hand one, this is an exciting process, which also has long-term financial significance. In fulfilling your dream of purchasing an apartment, you should make a balanced and intelligent financial plan adjusted to your personal and financial needs, desires and abilities. Before you decide whether to purchase an apartment we have identified a few important points that we recommend you consider for the financial planning process:
- Valuing the apartment. Is it worth the purchase price of its asking price? Whether the apartment is being purchased to be lived in or as an investment, we recommend performing a valuation by a known independent appraiser. This service does require payment but it is important. It’s possible that the value of the apartment is actually higher than the asking price and therefore it would be wise to buy it, or maybe the value does not justify the asking price. In such a case you can negotiate and try to bring down the price or find another apartment that is more fitting to your personal taste and budget.
- Financial Obligation. Purchasing an apartment requires a concentration of financial resources. Are you putting all your eggs in one basket? Do you have sufficient liquid funds for a rainy day?
- Where is your equity. Identify various savings accounts or other sources such as help from relatives or arranging a new or increased mortgage against your UK property. It is important to take into account that at least part of the savings will be used towards investing in the apartment and the monthly budget will need to include new expenses including the monthly mortgage payment. Therefore, you must plan your monthly budget in advance and check your financial capability to meet the new framework.
Purchasing a new apartment requires, usually, obtaining a mortgage with a fee payable to the bank, monthly capital repayments and interest payments. The bank will take a legal charge over the property as security for the repayment of the monies. The terms of a mortgage will include the provision of insurance, notably life insurance and property insurance. It is recommended, together with a bank representative, to check your financial situation, the amount of mortgage required and the proportion of your income that you will be required to pay for the mortgage and the mortgage insurance.
The financial plan needs to not only include the price of the property but also additional expenses required in the process, including fees for professionals (lawyer, accountant/tax consultant) and taxes (purchase tax and maybe even betterment levies).
All of these expenses must be taken into account in the framework of the financial plan.
The financial plan should include possible future income, as well as large expenses that are expected. For example, income from a savings plan that will soon mature, or expenses for a new car bought in instalments, expected promotion at work, the birth of another child, etc.
There is an understandable tendency to invest more efforts and resources into an apartment that is owned by you and is your private property (as opposed to a rented apartment for example), both in the building itself and its contents. Therefore, it is important that the financial plan will include at the outset the expenses relating to the required investment – renovations, a new kitchen, equipment for the apartment etc.
They say there is nothing smarter than those with experience. It is important that you use the knowledge accumulated by family and friends who have purchased apartments and use the advice and tips for intelligent financial management.
Mizrahi Tefahot Bank Limited
We are the largest mortgage provider in Israel. We have a branch in London and shall be happy to discuss your mortgage requirements at any time’