According to the Bank of Israel, as of January 17, 2021, the limit on taking out prime-rate mortgages in Israel will be lifted, so that it will be possible to take out up to two thirds of a mortgage using prime-rate, which is the cheapest component in a mortgage. However, the borrower is also exposed to an increase in payment in case of a future increase of the interest rate.
This relief will become available in three weeks to all apartment buyers in Israel, including first time buyers, home improvement borrowers, and investors in real estate properties. Those who refinance their mortgage will be able to enjoy the relief a month and a half later, starting on February 28.
The Bank of Israel explained that these differences in the availability of the new feature are due to the fact that the banks must update their automated operations in their systems.
Calcalist estimated that the abolition of the prime-rate limit will significantly increase demand in the mortgage market by home buyers, investors, and individuals looking to refinance. The fear is that an increase in demand for mortgages would also lead to rising prices in the real estate market.
The Bank of Israel clarified that mortgage holders who are currently in the process of freezing their mortgage payments will not be able to refinance the same mortgage while maintaining the deferred payments.
Also, despite the removal of the limits on prime-rate, the Bank of Israel does not recommend taking the maximum prime-rate allowed. Supervisor of the Banks Yair Avidan said on Sunday that “abolishing the restriction has the power to increase the flexibility and variety of options available to borrowers and even to somewhat reduce the monthly mortgage payments. At the same time, it’s important to emphasize the importance of the need for careful consideration on the part of of the borrower when choosing a mortgage basket, taking into account the costs and risks that exist in each of the possible venues in the future.”
Also, officials at the Bank of Israel noted that next year should see a reduction in the early repayment fee, which should make the refinancing process more attractive. Under this change, an additional 50% discount rate will be awarded on an early repayment fee after 8 years.
This amendment still requires approval from the Justice and Finance ministries as well as the Knesset Finance Committee, a process Bank of Israel officials believe will be completed during 2021.