Second Home Mortgage
If you are planning to purchase a second home, you have probably already thought about how to take out the appropriate mortgage. Unlike the purchase of a first apartment, an additional apartment is sometimes accompanied by a combination of existing loans, tax considerations and a complex monthly cash flow, so it is important to plan the move responsibly.
The process of obtaining a Second Home Mortgage is subject to the regulation and guidelines of the Bank of Israel, which set different rules than those that apply to buyers of a first apartment. These rules concern, among other things, the maximum loan-to-value (LTV) ratio that can be received as well as the loan mix and the interest rates offered by the banks.
Professional mortgage advice is designed to help you understand the full range of considerations and options before you. As part of the consultation, we will examine your ability to repay, adjust the mortgage mix to your goals, and assist you in the full administrative process with the relevant institutions.
Questions and answers about a Second Home Mortgage
We have put together for you common questions and answers on the subject of a Second Home Mortgage, 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 the loan-to-value (LTV) ratio for a second home?
When buying an additional apartment that is not for home upgraders, the banks allow up to 50% financing, which requires 50% equity. On the other hand, home upgraders who undertake to sell their existing apartment can receive up to 70% financing, which makes the upgrading process easier.
How does the bank check double repayment capacity?
The bank examines your total income against all obligations, including the existing and new mortgage. The total repayment ratio (total monthly payments) will usually not exceed about 40% of your disposable income.
Is rental income considered for a mortgage?
Yes, the bank recognizes future rental income from the purchased property as part of the calculation of your ability to repay. However, the bank will usually recognize only a part of the amount (for example 80%) to take into account periods when the property is not rented.
What is the recommended mortgage mix for a second home?
A balanced mix for a Second Home Mortgage combines different tracks, such as prime, a fixed-rate unindexed track, and variable-rate tracks. The goal is to spread risks between stability (fixed interest rate) and flexibility (variable interest rate), depending on the purpose of the purchase and the desired level of risk.
Are the interest rates on an additional home higher?
Interest rates on a mortgage for an investment apartment may be slightly higher than those for a single apartment, as the bank considers this a higher risk transaction. The final pricing depends on your financial profile, the loan-to-value (LTV) ratio and the transaction data.
What additional costs are there in buying an additional home?
Beyond the price of the apartment, financing a second home includes additional expenses: purchase tax, attorney's fees, a bank file-opening fee, the cost of appraisals, and the purchase of life insurance and building insurance for the mortgage.
What are the main financial risks?
The main risks are an increase in the monthly repayment as a result of an increase in the consumer price index or the prime interest rate. Managing a double monthly repayment requires careful cash flow planning to avoid difficulties, especially if there are periods without a tenant.
When is a grace or balloon loan relevant?
An interest-only grace period can be suitable for home upgraders to facilitate the cash flow until the sale of the existing property. A balloon loan (principal repayment at the end of the period) is rarer and is often suitable for short-term bridging needs.
What Is the Difference Between an Investor and a Home Upgrader?
A home upgrader purchases a home as their residence and undertakes to sell their current home, and is therefore entitled to better financing conditions (up to 70%). An investor who purchases an additional apartment for investment is limited to 50% financing and is subject to a higher purchase tax.
What are the common mistakes to avoid?
A common mistake is overleveraging without sufficient equity or a "safety cushion" for difficult times. Other mistakes include poor planning of the mortgage mix, underestimating the associated expenses and ignoring interest rate and index risks.