The increase in the Bank of Israel’s interest rate in the last six months from 0.1% to 2.75% will cost themortgage The average and many feel very well the high cost of the largest loan they take. The route that was most affected by the interest rate increases is the prime route, because it consists of the Bank of Israel interest rate plus the prime component (1.5%) as well as an increase determined by each bank separately. Therefore, as the interest rate of the Bank of Israel increases, the route becomes more expensive accordingly.
Today (Monday) announced Bank Hapoalim Because it will allow its customers who wish to extend the period of the prime loan course while maintaining the other terms of the original loan course (and without additional fees, including an early repayment fee). This, according to the bank, is in order to help customers and reduce the monthly repayment in this route. Globes has learned that there are banks that have the proposed solution on their table, but Hapoalim is the first to implement it.
Hapoalim offers this to customers whose mortgage includes a prime route, and the balance of their loan period is greater than 5 years and less than 25 years, to extend the period when the margin is over The prime interest rate will remain the same and will not change. The Bank of India states that extending the period of the prime route without changing the interest calculation mechanism may reduce the monthly repayment in this route, but it should be taken into account that it may increase the total amount of interest that will be paid to the bank for the extension of the period. This, in the event that the customer does not repay the full amount of the loan in the recycled prime route, before the end of its original period.
They even point out that although the interest rate in the prime route will not change, there may be changes in other loan routes in the mortgage which will affect the amount of the repayment, for example an increase in the consumer price index will affect the interest rates in the index-linked route.
“From a consumer point of view, this is good news, and maybe it was even requested that it come from the supervision of the banks,” comments Yonatan Berliner, chairman of the professional committee at the Association of Mortgage Advisors. “A customer who has a good mortgage but finds it difficult to meet the monthly repayments is first of all a captive customer, because if he wants to open his mortgage and extend the prime period, the banks will raise his interest rate, so if the bank allows the period to be extended without raising the interest rate, this is the same.
“There is no doubt that the bank itself also benefits from the move because it will receive interest payments for a longer period, but again, this is a correct and necessary move. The test for Hapoalim will be whether in the future it will allow customers to take the opposite route – a customer who took out a 20-year loan and asked to extend it, But in the future his salary will increase and the interest rate on the prime will decrease and he will want to shorten the loan period – will they even then allow him to do so without changing the terms of the loan.”
Bank Hapoalim will allow such flexibility to customers, while maintaining the terms of the loan. This is apparently subject to checking the borrower’s ability to repay, since the shortening of the period will raise the client’s monthly repayments above those that originally existed.
Who is it suitable for?
The Association of Mortgage Consultants explained that it is important to remember that any extension of the loan period and lowering of the monthly repayment necessarily increases the total interest payments to be paid to the bank. “Therefore, it is recommended to use this option only for customers who find it difficult to meet the repayment of the monthly payments following the increase in the prime interest rate. In terms of a Band-Aid for a problematic period and not a permanent solution.”
According to the association’s calculation, a customer who, before the prime rate increased, took out a mortgage with NIS 350,000 in a prime route for about 20 years, the monthly repayment following the increase in the prime interest rate resulted in an increase of NIS 450 in the monthly repayment. Extending the prime course to 25 years will lower the monthly repayment by NIS 275 and extending the period to 30 years will lower the monthly repayment by NIS 450, a figure that returns the monthly payment to the monthly repayment rate before interest rates in the economy increased.
“If in the future the monthly repayment capacity increases or the repayments decrease, it is recommended to carry out the opposite process and shorten the loan period again,” stated the Association of Mortgage Consultants.
Dalit Raviv, assistant to the bank’s CEO and in charge of the retail division: “This is the first of a series of moves that the bank is planning for the benefit of mortgage holders under the Bank of Israel’s changing interest rates. We decided to take an initiative and pro-actively offer to customers who are interested in it and meet the criteria, to carry out a move that will reduce the monthly repayment to what it was before the interest rate increase, thereby easing the household’s current monthly expenses.”