New Mortgage for a New Construction (New Build)

New Mortgage for a New Construction (New Build)

Selecting a new mortgage for purchasing a new construction (new build) is a central and especially important process, requiring proper understanding of restrictions, requirements, and regulations of the Bank of Israel. When planning to buy a new build, it is important to focus on several key aspects related to mortgages.

Loan Requirements:

The Bank of Israel sets specific standards for obtaining a mortgage. There are limits on the loan-to-value ratio and on the monthly payment relative to income.

Loan-to-Value (LTV):

The Bank of Israel limits the loan-to-value ratio. Buyers typically must deposit at least 25–30% of the property cost. LTV determines the difference between property price and mortgage amount. Assess your financial capacity to provide the required equity.

Repayment Ability:

The Bank of Israel also sets limits on monthly repayments. Typically, mortgage payments should not exceed 40% of disposable income. This affects the amount a bank is willing to lend.

Banks check borrowers’ ability to pay, including all obligations. Prepare documents proving income, including payslips, profit/loss statements (for self-employed), and a list of current loans.

Before granting the mortgage, the bank appraises the property. This appraisal affects the possible mortgage amount. Understand the criteria used by the bank.

Banks also check credit history. Existing debts or past defaults may affect your ability to get a mortgage or its terms.

Interest Rate Terms:

Understand available rates — fixed, variable, indexed — and how each affects long-term payments.

Fixed rate: ensures a constant interest for a defined period, allowing predictable monthly payments.

Variable rate: changes according to economic indices (e.g., Bank of Israel rate). Advantage if rates drop, risk if rates rise.

Indexed variable rate: linked to a consumer price index or other. Payments may rise or fall depending on index changes, providing inflation protection but potentially higher obligations.

Choose rate type based on personal financial situation, long-term planning, and risk/stability preference. Consult a professional mortgage advisor.

Repayment Period:

The Bank of Israel sets a maximum repayment period. Consider duration and financial planning.

Repayment period: number of years to repay the loan. Affects monthly payments and total interest.

Duration: typically several years up to 30 years, depending on bank agreement and Bank of Israel regulations.

Impact on monthly payments: longer term = lower monthly payment, higher total interest.

Repayment speed: choose rapid repayment to reduce debt, or longer term for cash flow flexibility.

Early repayment: some banks allow early repayment without penalties; confirm in advance.

Management Fees:

Consider all associated costs: bank fees, guarantees, etc.

Insurance:

Banks require life insurance (mortgage insurance) and property insurance. Ensure coverage.

Consult experts, study materials, and understand laws and restrictions. Mortgages are among the largest and most important loans in life; manage wisely according to official guidelines.