One of the main issues with “Mehir LaMishtaken” is the fact that it isn’t accessible to everyone.
For instance: An apartment in Kiryat Motzkin that costs 950,000 NIS still demands at least 260,000 NIS for down payment and expenses, and over 4,000 NIS/Month for mortgage payments.
BOI, Mortgage banks and Ministry of housing have agreed to allow mortgages of much higher rates of the property price. This will not solve the issue of monthly payments, but it would help with the necessity for a huge down payment.
Here is how it works:
Normally, mortgages are calculated based on thee lower figure between contract price and the value assigned by an assessor. This means that borrowers can get 75% of the lower sum, leaving them to pay a high down payment. The new regulation (relevant only for government discounted projects such as Mehir LaMishtaken) allows assigning a mortgage based on the higher of the two, thus leading to a bigger mortgage and a smaller down payment.
Back to our Kiriat Motzkin example:
In the case of Kiriat Mozkin the estimated value is about 1.15 Million NIS, but the contract price is only 950,000 NIS.
75% of 950,000 NIS is 712,000 mortgage, which leads to a 232,000 down payment, before adding expenses.
75% of 1.15 M is 862,000 NIS which leads to 88,000 NIS down payment, before adding expenses. It is important to know that BOI limited the down payment to at least 100,000 NIS.
Here are the exact terms:
- Only relevant for government subsidizing projects.
- As long as property price is under 1.8M a bank may choose to base only on estimated value.
- For houses priced over 1.8M the bank should use the higher between contract price and 1.8M.
- Buyers must pay at least 100,000 NIS as down payment.
Bank of Israel formal announcement: http://goo.gl/LE8Mg1