All-Purpose Mortgage
When a significant amount of financing is required, there is sometimes a need for a long-term solution based on existing collateral. An all-purpose mortgage makes it possible to leverage an existing property by securing a loan against it, for diverse needs such as family assistance, education costs or investment in a business.
The loan amount and terms depend on the property’s value, the permitted loan-to-value (LTV) ratio, and the assessment of repayment capacity. As part of the assessment, existing obligations on the property are examined, and in some cases also the possibility of a second-ranking lien when there is an active first-ranking mortgage.
An all-purpose mortgage requires careful customization; it is important to examine all financing options and their implications for the monthly payment, especially when there is already a mortgage on the property. Mortgage advice helps to formulate an appropriate, cost-effective mortgage mix for the long term.
Questions and answers about an all-purpose mortgage
We have compiled for you common questions and answers about all-purpose mortgages, so that you can receive well-founded and organized information that will help you understand the main concepts, options and steps in the process.
What is an all-purpose mortgage?
This is a large loan secured by a lien on a real estate property that you already own. Unlike a standard mortgage for the purchase of an apartment, you can use the money received here for any purpose you choose, such as repaying loans, helping children, renovation or any other need.
Who Is an All-Purpose Mortgage Secured by Property Suitable For?
It is suitable for property owners who need a large amount of money and want to receive it under more favorable repayment terms than a standard consumer loan. It is less suitable for those who do not own a property to pledge, or for those who are looking for a very short-term financing solution.
What are the main threshold conditions that the bank checks?
The bank will examine the value of the existing property through an appraiser, your credit history and your monthly repayment capacity (disposable income). A necessary condition is that the property be registered in your name in the Land Registry (Tabu) and without foreclosures or legal problems.
What is the maximum loan-to-value (LTV) ratio that can be received?
According to Bank of Israel guidelines, it is possible to receive up to 50% financing of the value of the property as determined by an appraiser. If there is already an existing mortgage on the property, the new amount you can receive will be calculated from the difference between 50% of the property's value and the current mortgage balance.
What affects the interest rate on an all-purpose mortgage?
The interest rate on an all-purpose mortgage will usually be higher than the interest rate on a mortgage for the purchase of an apartment. Its amount is affected by your credit rating, the requested loan-to-value (LTV) ratio, the repayment period and your employment stability.
Is it necessary to build a mix of tracks here as well?
Yes, absolutely. Similar to a regular mortgage, here too a mix is built that combines different tracks such as prime interest, fixed interest (linked or not linked to the index) and variable interest rates. Building the right mix is essential for adjusting the monthly repayment to your capabilities and expectations.
What additional costs are there in the process?
A number of ancillary costs must be taken into account: appraiser's fees for property evaluation, a bank file-opening fee, costs of registering a mortgage with the mortgage registrar or in the Land Registry (Tabu), as well as the cost of life insurance and building insurance for the property.
What are the main risks you should be aware of?
The main risk is an increase in the monthly repayment, which may result from an increase in the prime interest rate or an increase in the consumer price index on CPI-linked tracks. Another risk is that the property itself is mortgaged, and non-compliance with payments could lead to legal proceedings by the bank.
Is an all-purpose mortgage a mortgage refinancing?
No, these are two different products. Mortgage refinancing is intended to improve the terms of an existing mortgage, while an all-purpose mortgage is a new loan taken against the property, and can also be used to consolidate existing loans into one larger and more convenient loan.
What is the most common mistake to avoid?
A common mistake is to focus only on the lowest interest rate, and ignore the risks in the mix you have chosen or the length of the repayment period. It is important to examine the amortization schedule and understand the expected monthly repayment throughout the life of the loan, including scenarios of an interest rate or index increase.