From Sunday, borrowers of new housing loans can attach two-thirds of the loan to the prime interest rate, which is at a low. The basic interest rate in the Bank of Israel is 0.1% per annum, and therefore the prime interest rate is 1.6%, according to which each bank determines the interest rate on the loan it will grant to the borrower. This is a directive announced by the Bank of Israel last month, which means removing restrictions on the provision of variable-rate housing loans.
At the end of December, the Bank of Israel updated that it had set January 17 as the date on which restrictions that have existed for years would be removed. The date has been set to allow the banks to prepare for the substantial change, which is expected to reduce the repayment of housing loans for long periods by thousands of shekels a year on average.
After examining the comments of members of the Bank of Israel's Advisory Committee and the public's comments, the Supervisor of Banks submitted an update to the banking system on December 27 to provide housing loans, which eliminates the limit on the loan portion of the prime interest rate and sets schedules for the amendment to take effect. The guidelines stipulate that January 17 will be the date of commencement of provisions for new loan takers.
However, regarding the refinancing of a housing loan - due to the potential operating burden, and in order to allow the banking system to prepare properly, the abolition of the restriction regarding a housing loan intended to finance early repayment of a loan will take effect on February 28, 2021.
As a complementary measure, an examination is being conducted at the Bank of Israel regarding the method of calculation and the level of the early repayment fee on housing loans, which will reduce the mortgage cycle when a borrower comes to take this step. Updating the early repayment fee mechanism involves consultations with the Ministry of Justice, and requires the approval of the Minister of Finance and the Knesset Finance Committee. This procedure is expected to be promoted during 2021.
The Bank of Israel stated that additional restrictions remain on housing loans, including the ratio of the loan to the value of the property, the amount of the monthly payment as part of household income and the limit on the loan portion at a variable interest rate, according to which at least one third of the housing loan will be given at a fixed interest rate.
The Supervisor of Banks, Yair Avidan, noted with the decision to remove the prime interest rate limit, that "we took this step out of a desire to facilitate with the borrower public, with a risk-based systemic view that balances individual risk management and housing portfolio risk management." More economic. "
The Supervisor added that "the abolition of the restriction has the power to increase the flexibility and variety of options available to borrowers and even reduce the monthly mortgage payment to some extent. At the same time it is important to emphasize the borrower's careful consideration when choosing a mortgage basket." In each of the possible routes, looking to the future. "