The Complete Israeli Mortgage Dictionary
Are you in the process of receiving a mortgage in Israel (mashkanta) and are confused by all the technical terminology? In this Israeli Mortgage Dictionary you will find explanations about the common terms in the field.
Our firm, which has branches in Jerusalem and Tel Aviv, specializes in real estate and land law. We advise and represent our customers in a variety of areas, such as mortgages, real-estate transaction negotiations, land taxation, rental contracts, and land registration. In this article we explain what all the complicated terms that you encounter in the mortgage field mean:
FINANCE PERCENTAGE
The finance percentage is the share of the apartment value that you receive as a loan. For example, if the apartment that you wish to purchase costs one million ILS and the bank approves a loan of 600,000 ILS, then the finance percentage is 60%.
The banks in Israel fund up to 50%–75% of the apartment value, depending on the abilities of the bank and of the person requesting the mortgage. The amount of mortgage depends on many factors—mainly the income of the person requesting the mortgage and whether this is their first apartment or whether they already own an apartment. Young couples who receive an apartment via the “Apartment at a Discount” project may be eligible to a finance percentage of over 90%.
RIGHTS IN LAND CERTIFICATE
This is a document that shows who has the property rights and to whom the property belongs. It is needed mainly for assets that are not registered in the land registry deed (Tabu) but are registered elsewhere, such as in the Israel Land Authority (ILA) registry or in some housing company registry. Issuing the certificate is an integral part of the process of receiving approval for the mortgage.
INFLATION
Every month, the Israel Central Bureau of Statistics (CBS) publishes the consumer price index (CPI), which is determined by calculating the value of various residential products, fruits and vegetables, and other basic products. If the CPI is on the rise, this means that the value of the currency has fallen, so the return rate of index-linked loans (see definition below) rises.
Initial APPROVAL
As part of the negotiations for buying an apartment, the buyer asks for initial approval so that they may find out if they are eligible for a mortgage. To get this approval, the buyer submits a request, and the bank issues a certificate containing the amount of mortgage that it approves. This certificate is valid for as long as is stated within, but it does not legally bind the bank to grant the mortgage.
LIFE INSURANCE
Mortgage banks require anyone requesting a mortgage loan to have life insurance, which ensures that the bank will receive the full return for the mortgage if the loaner passes away before completing the payments. Be aware that life insurance is mandatory even though the bank has a warning note for the asset that allows the bank to realize the asset if the loan is not returned.
PRIVATE DWELLING INSURANCE
Besides life insurance, some banks require purchasing an insurance policy for the apartment that covers any damages that may be caused to the flat that would reduce its value. Some of the insurance policies also cover earthquake damage.
EMI INSURANCE
If you were approved a higher mortgage than the normal amount—for example, at 90% of the property’s value—the mortgage bank will require you to have EMI insurance to cover the difference between the regular finance percentage (see definition above) and the finance percentage that was approved for you. If your finance percentage is 90%, for example, then the insurance will cover 15%, which is the difference between the high finance percentage and the regular finance percentage (75%). You will need to pay for the insurance separately, but the insurance will allow you to leverage the mortgage to a higher percentage.
CANCELING A MORTGAGE
After you finish paying the mortgage, you must submit a request to cancel it. The request must be submitted to the real-estate registrar, who will then eliminate the warning note (see definition below) associated with the property. You must also submit a request to the Land Registrar to cancel your pledge, who will then cancel the original registration of the mortgage loan.
Canceling the mortgage registration is the responsibility of the mortgage bank, but it is recommended that you make sure this is done.
MORTGAGE TOWING/DRAGGING
If you already have an apartment and wish to buy another one in its place without making any changes to the mortgage conditions, you need what is called “mortgage towing,” or “mortgage dragging”: you need to drag your mortgage from the previous asset to the current one. Doing this requires approval from the bank.
FEE FOR OPENING A FILE
When you request a mortgage, the mortgage bank collects a fee for handling your case, which goes to the bank officials for examining your documents and other work that is part of the process of approving the mortgage.
RANKING EQUALLY (PARI PASSU)
Pari passu is a phrase that is used when an asset is mortgaged by two or more banks, each of which grants a part of the loan for the purchase. This usually occurs with high-priced assets for which a mortgage has been granted by two or more banks. In this case, if the lender does not make timely return payments, the banks may jointly put the property on sale.
SECOND RANKING MORTGAGE
A second ranking mortgage, also known as a secondary mortgage, is simply a second mortgage. The loaner already has a primary mortgage for their apartment and wishes to receive a second mortgage, usually for renovations or some other purpose. In this case, the bank who has granted the first mortgage has priority over other banks in realizing the property, but banks will not grant the loaner a second mortgage if they believe that it will not be possible to realize both mortgages.
BRIDGING LOAN
If you own an apartment but have found another apartment at a bargain price and wish to sell the first apartment and live in the second one, the required capital for the second apartment will only be available after you sell the first apartment. In this case, the bank will grant you a bridging loan to bridge the period between purchasing the second apartment and selling the first one. The bridging loan must be returned immediately upon receiving the money from the sale of the first apartment.
INDEX-LINKED LOAN
This is an interest-based loan with a fixed interest rate that does not change even when the Bank of Israel raises the prime rate (see definition below). However, the loan is linked to the CPI that is published monthly by the CBS; therefore, the return rate may change in the case of a market inflation (a devaluation of the currency).
BALLOON (PAYMENT) LOAN / BULLET LOAN
In this type of loan, the loaner only returns the interest on the mortgage, while the principal payments are postponed to the end of a predetermined period. This type of loan is only granted to a person who has proved their ability to return the principal sum in a single payment at the predetermined time.
WARNING NOTE
A warning note is a note that appears on the land registry extract (Tabu) of the property for which the loan was taken. The note is intended to prevent the property owner from selling the property to a third party before returning the loan in full to the mortgage bank. Also, because the note appears on the land registry extract, anyone interested in purchasing the property will see that the loan is still standing and that the property cannot yet be transferred to anyone.
LINKAGE DIFFERENTIALS
In an index-linked loan (see definition above), if the CPI rises, you will be required to pay the linkage differentials through higher monthly return payments.
ELIGIBILITY
The Ministry of Housing grants loans on favorable terms to individuals who meet certain conditions that are published by the Ministry from time to time. Examples of such eligible individuals include new immigrants under the Law of Return, young couples who do not own a home, and single-parent families.
LIMITED BANK ACCOUNT
If more than ten cheques are returned by the drawee bank due to insufficient funds or for any other reason, the bank account becomes limited for a period of 12 months. The title of “severely limited” means that a person owns two or more limited accounts. A person who has a limited account or is “severely limited” cannot receive a mortgage for as long as they are limited and, in extreme cases, even after that period.
SPITZER TABLE
The Spitzer Table is an amortization schedule that shows how much of each return payment goes to covering the interest and how much of the payment goes to returning the initial loan (the principal). In this case, the loaner regularly pays back both the interest and the principal. The total payment remains the same; what changes is only the proportion of the interest return and principal return.
EXCLUSION LETTER
An exclusion letter is used when purchasing a flat from a contractor: In a construction project, the land and any structure built on it are pledged to the mortgage bank. When the purchaser wishes to receive a mortgage to fund the purchase, they must send the mortgage bank an “exclusion letter” from the loaning bank, in which they declare that, as soon as they receive the money from the purchaser, the purchaser’s portion in the lien will be excluded.
LETTER OF INTENT
In an apartment purchase transaction, the buyer asks the seller for a letter of intent from the mortgage bank appearing in the property’s warning note. This letter includes the outstanding mortgage debt, which, after being paid in full, will enable eliminating the warning note from the property’s land registry extract. The letter must include the exact amount of money that must be transferred by the buyer to the seller’s mortgage bank if the warning note is to be eliminated.
MORTGAGE DISPOSAL—PAYING OFF THE MORTGAGE DEBT
To dispose of the mortgage, the outstanding mortgage debt must be paid until the predetermined date, including extra fees for early redemption (final repayment of the loan), capitalization fees (see definition below), and other additional costs that the bank required when it granted the mortgage loan.
CAPITALIZATION FEE
The capitalization fee in a mortgage loan is calculated based on the remaining debt to be paid until redemption. This fee must be calculated if you wish to refinance your mortgage or to redeem it before the predetermined date, and it is intended to calculate the bank’s loss in such a case. The capitalization fee is determined according to this loss.
PRIME RATE
The prime interest rate is the Bank of Israel’s interest rate plus 1.5%. For example, if the Bank of Israel’s interest rate is 2%, the prime rate will be 3.5%. The rate is usually composed of the prime rate plus or minus the rate determined by the bank. For example: prime rate + 1% or prime rate – 1%.
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:מאמרים מומלצים