Home Upgrader Mortgage
Tens of thousands of families in Israel upgrade their homes every year, sell their existing property and purchase a spacious apartment or one that is more suitable for their changing needs. As home upgraders, you face various challenges, among others, managing the existing mortgage at the same time as the new one.
A central challenge is managing the financing during the interim between purchasing the new home and receiving the proceeds from the sale of the current one. Sometimes a bridging loan or mortgage portability is required, and each option has different consequences, which require proper preparation with the banking system.
Our expertise is guiding home upgraders in this process. We provide professional advice to analyze all the options, from porting an existing mortgage to taking out a new mortgage. Together, we will build for you an accurate and affordable mortgage mix that will meet your financial goals.
Questions and Answers About a Home Upgrader Mortgage
We have compiled for you common questions and answers on the subject of Home Upgrader Mortgage, so that you can receive well-founded and organized information, which will help you understand the main concepts, options and steps in the process.
What is a replacement apartment for home upgraders?
A replacement apartment is the new property you purchase, while committing to sell your current apartment within a period of time specified by the Bank of Israel. This definition allows you to receive financing terms available to single-home buyers rather than investors, which improves the terms of the mortgage.
What is the maximum loan-to-value (LTV) ratio in such a mortgage?
With a Home Upgrader Mortgage, you can get up to 70% financing (LTV) of the value of the replacement apartment you buy, subject to an appraiser's assessment. This, on the assumption that you have committed to sell the existing property in the required time period.
How does the bank check double repayment capacity?
The bank will examine your ability to repay by calculating the total monthly repayment of both mortgages (the old and the new) together. The repayment ratio will be checked against your disposable income to make sure you will be able to meet the payments in the interim period in which you will own both properties.
What is a bridging loan for home upgraders?
This is a short-term loan designed to bridge the cash flow gap until the sale of your old apartment. It is usually given in the form of "Grace" (payment of interest only) or "Balloon" (repayment of the principal and interest at the end of the period), but the main risk is a delay in the sale which may make the deal more expensive.
How do you plan a mortgage mix for a housing upgrade?
A mortgage mix for home upgraders should be flexible and take into account the interim period. It is customary to combine different tracks (such as prime, fixed-rate CPI-linked mortgage track or unindexed variable-rate track) to balance risks, especially when part of the repayment depends on the sale of the existing property.
What happens if the sale of the apartment is delayed?
A delay in the sale creates significant cash flow pressure, because you will be required to pay double the monthly repayment or the cost of the bridging loan for a longer period than planned. A "buy before you sell" scenario requires financial preparation for such a case, including a margin of safety.
What additional costs are there in the process?
Besides the mortgage itself, there are other costs to consider. These include a bank file-opening fee, the cost of appraisals to assess the value of the property, and of course the purchase of life insurance and building insurance as required by the bank.
When Should You Obtain Approval in Principle?
It is recommended to get a mortgage approval in principle even before you start actively looking for an apartment. The approval gives you a clear budget framework, shortens processes and presents you as ready and serious buyers to sellers.
What are common mistakes of home upgraders?
The most common mistakes are over-leveraging, planning an overly optimistic schedule for the sale of the existing apartment, and relying on a bridging loan that is too long. Another mistake is building a mortgage mix that is not adapted to the scenario of a delay in the sale.
How Is a Bridging Loan Repaid Early?
After selling your apartment and receiving the proceeds, you make a full early repayment of the bridging loan. The remaining funds, together with the new mortgage, are used to pay for the replacement apartment and close the deal.