The increase in the Bank of Israel interest rate is reflected in the mortgage interest rates, where the direct and immediate effect is on the prime-linked route. With an average mortgage of one million shekels in which a third is taken in prime interest, this is an increase in the price of about 140 shekels following the interest rate increase of an additional 0.75% today (Monday), and a total increase of 450 shekels in the monthly repayment since the beginning of the year.
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Let’s recall that this increase in price is compounded by the increase in price due to the increase in the index since the beginning of the year, if the mortgage mix also includes index-linked routes.
Whoever financed the equity capital used to purchase the apartment through a loan from one of the institutional bodies, will absorb the increase in the interest rate on this loan as well, at the rate of any increase in the Bank of Israel’s interest rate.
The increase in interest rates and the increase in monthly repayments that weigh on the current repayment of the mortgage have two effects: the first – they actually create a limit on the amount of the mortgage that the borrowers can take, even if they have raised sufficient equity, since they encounter the monthly repayment limit. According to the regulation, the monthly repayment should not exceed 40% of the disposable income of the household, but most banks reduced this to a third in their internal risk management. The second effect is that the rising costs lead to the extension of mortgages in order to spread the repayment over a longer period, and it should be remembered that the longer the mortgage, the higher its total cost.