Will it be easier to compare routes before taking out a mortgage?

by time news

The Israeli public attacks mortgages – without always knowing if the route the bank offers is good for them at all (hint: if it’s good for the bank, it’s probably the least good for the customer). When buying an apartment, most people go to the bank and take the first offer that the bank gives them – even though it is not the best offer for the customer. Why? Because a bank is a financial intermediary. His goal is to achieve the highest profit, that is – to give the mortgage that will be most profitable for him.

But if it is the most profitable for him, it is probably the least profitable for the other side, the one who takes the loan – the public. The problem is that the public usually takes out the first loan they get, and also does not always understand the fact that even if the first payment is lower – they may go up in the future, and take out the mortgage according to the amount of the first payment.

Therefore, the best recommendation is first of all No Accept the offer that the bank offers (even if it is the bank where your account is managed. Do not buy these stories that because the bank ‘knows’ you it gives you a good loan), but go and do a market survey between the banks. This is true of any loan, but it is especially true of mortgages, which are known to be the largest loan that the average family takes on.

Simplifying the understanding of mortgages – a welcome move by the Bank of Israel
So mortgages are at an all-time high, breaking every month (thanks in no small part to the Bank of Israel’s own mistake), and now the Bank of Israel is promoting a very important move – the truth should have happened a long time ago – and wants to allow the public to compare much more easily. how? When you contact the bank and are offered a mortgage, a bank will also have to present you with data from three ‘default’ routes of the Bank of Israel, which will of course have different interest rates (ie monthly repayments and total mortgage repayment) and will be affected by the loan period.

Each of the baskets will show: the projected total interest rate, the total forecast payments in the entire mortgage period and also – the highest monthly payment expected according to the forecasts (to be derived from the expected path of inflation and interest rates). In addition, the Bank of Israel hopes to shorten the time for granting the approval in principle to a number of days. In addition, it will be possible to apply for a mortgage online at all banks.

The Bank of Israel hopes that in this way the public will be able to more easily understand the mortgage terms offered to it and their implications for future payments, compare the various offers given to it by several banks and apply for a mortgage offer quickly – a welcome move that may increase public bargaining power with banks The competition.

The default routes that banks will be required to present are:
100% fixed unlinked
1/3 fixed unlinked, 1/3 linked variable and 1/3 linked to prime interest
1/2 fixed unlinked and 1/2 linked to prime interest

Sometimes excess choice and excess options – it’s less good. A beneficial reduction in the mortgage market, and so it happens in the world
While in most countries of the world mortgages are divided into two tracks: fixed interest rate and variable interest rate, mortgages in Israel are divided between different tracks, including: unlinked fixed interest rate, linked fixed rate, unlinked variable interest rate, linked variable interest rate and prime, some tracks have different characteristics. In the index to which the track is attached. The products in the country allow for more variety and flexibility but also more complexity and clutter for the customer – who ultimately goes for what the bank offers – simply because he does not understand it. Sometimes an excess of choice does not produce a better result, say the behavioral economists – and this is true in the mortgage market in Israel.

The high complexity of the mortgage market makes it difficult for borrowers in Israel to compare the offers of the various banks and it even increases when the banks’ offers include different routes given for different periods, and the Bank of Israel hopes that the reform will facilitate the comparison.

when will it happen?
The Bank of Israel explains that this is an assimilation process that will take about six months, so they expect this to happen starting in mid-2022.

On the other hand, there are fears that the banks will try to put sticks in the wheels and stop the reform. But the bank is trying to cool the concerns and make it clear that it “will set off with certainty, and the question is just what minor corrections will occur along the way”

How soon will the banks give an answer in principle regarding the mortgage?
It currently takes about 14 days to receive an answer from the banks, which sometimes causes the public not to wait for an answer and also to try to advance to a final answer, and the Bank of Israel hopes to shorten the time to receive an answer from the banks to “a few days”.

Will there be uniformity in the data that the banks will provide to the public?
Basically Yes. The Bank of Israel will provide the banks with the forecast interest rate and inflation path and the banks will have to calculate according to the same methodology – so the alternative offers of the Bank of Israel should be uniform in all banks, what will change is of course the bank’s own proposal. Of course, over the years of the mortgage life, the path of interest rates and inflation can change, and is likely to change, but the goal of the Bank of Israel is to provide the relevant information to the mortgage-taking public when they take it.

How will this affect mortgage advisers?
Even today mortgage advisers (unlike banks) give the customer forecasts about inflation and interest rates in the economy, but there is no standardization and uniformity in the data, and they will also have an easier way to create models. Bureaucratic work with the banks.

Will the new reform help stop housing prices?
No. There is no connection between this reform and the attempt to stop the rampage in housing prices. The reform is intended to make it easier for borrowers when taking out a mortgage, and in fact if it makes it easier it should not stop taking out mortgages, but that is not its purpose either, but to allow customers who make the significant decision of taking a mortgage – to take it more wisely.

The Bank of Israel, by the way, does not believe that the housing market should be combated by harming the banks’ profit line. In fact, they return the ball to the government and say: We need more supply. Build apartments.

The main test of the reform – ease and simplicity
This aforesaid reform is an important and positive move by the Bank of Israel. The big question is whether the general public, who usually come to the bank – or anywhere else – and sign the paperwork without reading it, will even look at the data and read in depth this time, or will people still just take the mortgage the bank offers and not use the new tool the Bank of Israel will give them – But the truth is that whoever does not read the paperwork, which seems to be simple, will this time be able to blame only himself.

This is what the form will look like:

Source: Bank of Israel

Governor of the Bank of Israel, Professor Amir Yaron: “This is a significant consumer reform, which will directly affect all mortgage borrowers in the State of Israel. Mortgage is the largest financial commitment in the lives of most households, but today mortgage borrowers have difficulty understanding the offers and comparing them without deep financial knowledge. “More for customers and make it easier for them to make one of the most significant financial decisions for them in an informed manner and even help the economic conduct of the household now and in the future.”

The Supervisor of Banks, Yair Avidan: “In order to simplify the process of obtaining a mortgage to finance the purchase and allow customers a quick contract with the bank, which will offer the best value proposition for them, we have taken a number of significant steps that will increase competition between banks and assist customers in decision making and execution. Market before getting a mortgage, as it will be easier to compare the various offers, and they will increase the control on the part of customers on the terms of the mortgage, including their ability to meet their obligations.I invite the public to use the tools The mortgage ”

The complete reform, published by the Bank of Israel:
Approval in principle in a uniform structure – the approval in principle will be the same between the various banks and will provide uniform, clear and comprehensive information. Among the variables that will be presented in the approval in principle: the projected total interest rate, the predicted total payments and the highest expected monthly repayment amount. An example of the approval in principle is attached to this post. These data will increase the level of transparency in the mortgage transaction and help the borrower better understand the obligations inherent in the various offers he will receive. It is important to emphasize that the information will be based on uniform calculation methodologies and will be made accessible in the same way by all banks in order to strengthen the borrower’s power during the market survey and comparison process with the various banks.

Uniform mortgage baskets for all banks – In order to make it easier for mortgage takers to compare the banks’ offers, a bank that has decided to offer the customer a mortgage will provide the customer with approval in principle, in addition to the mortgage basket offered by him, three uniform baskets. By the customer. The following are the compositions of the 3 uniform baskets:

Presentation of the projected total interest rate and the projected total payments – Today, in most cases, the mortgage loan consists of several tracks. Each track has a different interest rate, a different linkage mechanism and a different repayment period. The difference is not only between the different tracks in the same offer but also between the different banks’ offers. Thus the interest rates presented in the approvals in principle are often not comparable. In order to be able to compare the various baskets and the proposals of the various banks, each of the baskets in the approval in principle will also show the projected total interest rate and the total predicted payments for the entire mortgage period. These data take into account the expected commissions and monthly payments throughout the mortgage period based on forecasts from the capital market for changes in the consumer price index and interest rates in the economy, which are updated to the date on which the approval is given in principle.

These forecasts are derived from the prices of government bonds and reflect the assessments of capital market activists regarding the future development of interest rates and inflation. It is important to emphasize that all banks will be based on the same forecasts from the capital market, which will be published by the Bank of Israel, so that the basis for comparing the various price offers of the various banks will be uniform.

The highest expected monthly repayment amount according to forecasts – this figure will be presented to serve as an indicator of changes that may occur in the amount of monthly repayments, and will be based on capital market forecasts for changes in the consumer price index and interest rates, which are updated.

Shortening the time until the approval in principle is granted – Today, the time that elapses between submitting an application for a mortgage and receiving the approval in principle may take two weeks or more. This fact makes it difficult for borrowers to compare the offers of the various banks. It is therefore proposed that the time between the submission of the application and the granting of approval in principle be limited to a few days only.

Applying and receiving approval online – Customers of all banks will be able to apply for a mortgage and receive the approval in principle online.

Additional information that will be accessible on the bank’s website and on the customer’s personal page on the lending bank’s website: Simulator of mortgage loans, information on all existing types of mortgage loans and their details and more.

Presenting information for examining the viability of performing a mortgage loan cycle – When examining the viability of a mortgage cycle, it is not enough to compare the interest paid on the existing mortgage to the interest rate offered by the refinancing bank. Additional considerations such as an early repayment fee and the time left until the next update of the interest rate on certain routes should be taken into account. Thus, the bank will have to provide the borrower wishing to refinance the mortgage with the projected interest on the balance of payments which takes into account the actual amount the borrower will have to repay (including the early repayment fee and additional fees if any). This interest rate is comparable to the interest rate offered by the recycling bank and will help the customer make an informed decision. In addition, the bank where the active mortgage is managed must present to the borrower the next date on which the interest rate is expected to change.

Source: Bank of Israel


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