Why Check Mortgage Feasibility Before Searching for a Property?
One of the most common mistakes is falling in love with an apartment, entering negotiations, signing a letter of intent — and then being surprised that the bank does not approve the required amount. Not only is this embarrassing and frustrating, but signing a letter of intent without financing approval can result in losing a deposit (usually 10% of the deal value).
The solution: obtain mortgage pre-approval from the bank before you start searching. This is an indication of the amount the bank is prepared to consider, and you can get it for free and relatively quickly.
Mortgage Tracks in Israel
Prime rate: A variable track linked to the Bank of Israel interest rate + a fixed margin. Generally attractive when rates are low, but exposed to future rate increases.
Fixed unlinked rate (Kalatz): The interest rate is fixed for the entire life of the loan. Suitable for those who want certainty in their monthly repayment.
Fixed CPI-linked rate: The interest rate is fixed, but the principal is linked to the Consumer Price Index. The risk: if inflation rises, the principal balance grows.
Variable rate every 5 years: Renewed every five years at the market rate. A compromise between flexibility and certainty.
Most banks will require that at least one-third of the mortgage be on a fixed track, to protect you from accumulating risk.
How Is the Monthly Repayment Calculated?
The Spitzer formula (equal instalments over the full period) is the most common. The monthly repayment is a function of: the loan amount, the interest rate, and the loan term. The longer the term — the lower the monthly repayment, but the higher the total interest paid.
Example: A mortgage of ₪1,000,000 at 4% over 25 years — the monthly repayment will be approximately ₪5,280. Over 20 years — approximately ₪6,060. Over 30 years — approximately ₪4,770.
What Does the Bank Check When Approving a Mortgage?
The bank checks your disposable income (salary + other income), income stability (salaried vs. self-employed), your financial history (credit bureau report, late payments), and the amount of equity you are contributing. Self-employed individuals are usually required to provide income documentation for the past two years.
Use our Mortgage Calculator to assess your feasibility before visiting the bank.
Consider Using a Professional
Hiring a professional mortgage advisor is often very worthwhile, as a good advisor can save you tens of thousands — sometimes hundreds of thousands — of shekels over the life of the loan, in exchange for a few thousand shekels in fees.
A professional advisor will gladly educate you and share their knowledge to make working with the bank transparent and straightforward, while also saving you the time and effort of dealing with multiple banks simultaneously.