2. By: Yair Fischman March 2013 JYFischman@gmail.com Mortgages in Israel: The Basics 1Mortgages in Israel

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4. Costs of Mortgage Upfront 30% deposit. Opening a File (Tik) – Bank: 1. 0.25% of mortgage. 2. About 200 ₪ for registering property and other fees. – Broker: 1. 1% of mortgage (negotiate). Life Insurance for value of Mortgage. Property Insurance Property Assessment: 330-600₪ for less than 2,000,000₪ Engineer Mortgages in Israel3

5. Cost of Mortgage Per Month: Spitzer 100,000 ₪15 Years20 Years25 Years30 Years 3%690₪554₪470₪421₪ 4%740₪605₪527₪477₪ 5%790₪660₪584₪536₪ 6%843₪716₪644₪600₪ Mortgages in Israel4

6. Interest Rates Fixed RateLinked to an Index 1.Prime (P-0.95% for 25 years, August 2012 2.85%) 2.Ogen Makam Israel Bonds (M+1%, August 2012 2.9%) 3.Madad- Inflation in Israel (2- 3%+ Madad) 4.Foreign Currency Loans i.e. $, €, £, ¥... Libor Index (L+2%, Feb. 2013 2.63%) 5.Other indexes Mortgages in Israel5 Fixed rate for life of loan and not linked to any index. 5.0% for 25 years (July, 2012) 5.5% for 25 years (May, 2012) Note - All numbers are for 25 year loans. - Only Fixed and Prime Rates are negotiated rates. - Negotiate!!!

7. Interest Rates: Negotiated July 2012 Mortgages in Israel6

8. Comparing Fixed and Index Linked Mortgages Fixed MortgageIndex Linked Mortgages BenefitsDraw Backs Rates are low (approx. 3%). Rates change periodically. No interest penalty to pay off early (approx. 60 ₪ fee). Subject to drastic market fluctuations. Mortgages in Israel7 BenefitsDraw Backs Monthly payments never change. Higher monthly payments. Interest rate never changes. High interest rate (5+%). Safe from market fluctuations. Interest penalty for paying off early if rates fall. Budget

9. Payment Schedules Mortgages in Israel8 Type of Payment Plan Payments: Early years Payments: Later years Cost over time Conclusion Keren ShelahInterest is proportional to principal. Smaller principal means lower interest costs. Goes down Expensive early on, but it is the most cost effective. SpitzerMostly interest.More and more principal. No change Most loans MadadMostly fixed interest. Principal and Madad. Goes upCheap now, but very costly later on.

10. Madad Mortgages: 3 Parts Mortgages in Israel9 1. Payments on principal. Unpaid interest on Madad add to principal. 3. Payments on Madad. 2%-3% annual target for inflation. Madad Index can rise 5+% in a year. Interest payments on Madad are spread over the course of the loan. Monthly payments rise slowly. 2. Payments on stable interest 1.5%-3.3%

11. Comparison: Madad & Prime PrimeMadad 100,000 ₪ loan20 year loan 1% rise in interest1,000 ₪ total cost Effect on monthly payments 1000/12 months = 83₪ 1000/240 months = 4 ₪ Mortgages in Israel10 Change in monthly cost after a rise in interest.

12. Madad Mortgages: Conclusion For a 25 Year mortgage After 5 years you may still owe as much in principal as you borrowed. Payment schedules are designed so it can be 7-15 years before the principal+ Madad goes down. Monthly payments rise slowly but steadily. After 7-12 years total payments may be equal or greater than monthly payments for fixed rate mortgages. After 15-20 years mortgage payments may double. Think twice. Mortgages in Israel11

13. Prime & Makam Linked Mortgages Prime & Makam Mortgages Differences Between Prime and Makam Linked Mortgages PrimeMakam Payments change every month relative to changes in Prime index. Market changes effect payments once a year or once every 5 years. Slightly more volatile than Makam. Generally follows trends of Prime Index. Limited to 30% of Loan.No limit to portion of loan. No set interest rate available. Available with set interest for 1, 5 or more years. Length of loan does not change rates much. Length of set rate effects rates greatly. Mortgages in Israel12 AdvantagesDisadvantages Low rates (around 3.6% -.9%= 2.7%). 5+ years ago the rate was about 5- 10% Principal goes down every month. Payments fluctuate relative to changes in the index. About 60 ₪ fee for early payment. Interest rates can fluctuate greatly.

14. Madad (CPI) Index 1998-2013 Mortgages in Israel13 Source: Central Bureau of Statistics http://www1.cbs.gov.il/reader/prices/price_main_division_e.html?MainDivision=a&MyMonth=1&MyYear=2013 Madad/ CPI Yearly Change 19988.6% 19991.3% 20000.0% 20011.4% 20026.5% 2003-1.9% 20041.2% 20052.4% 2006-0.1% 20073.4% 20083.8% 20093.9% 20102.7% 20112.2% 20121.6% Jan-13-0.2%

15. Prime Rate Feb-133.3% Dec-123.47% Dec-114.25% Dec-103.50% Dec-092.50% Dec-084% Dec-075.53% Dec-066.44% Dec-055.98% Dec-045.39% Dec-036.70% Dec-0210.56% Dec-016.85% Dec-009.67% Dec-9912.67% Dec-9815% Source: Bank of Israel http://www.boi.org.il/ Prime Index (1998- 2012) 14Mortgages in Israel

16. Makam 1 Year (Israeli Bond) Index 3/1998- 3/2013 Makam Yearly Averages 199811.36% 199911.40% 20008.80% 20016.50% 20027.41% 20036.93% 20044.78% 20054.33% 20065.53% 20074.34% 20083.88% 20091.40% 20102.19% 20113.04% 20122.23% Mar-131.70% Mortgages in Israel 15 Makam Yearly Averages 15 year average 5,56% Based on Averages From: http://www.boi.org.il/he/dataandstatistics/pages/ seriessearchbysubject.aspx?Level=3&sId=41

17. LIBOR (London Interbank Offered Rates) 1998-2013 Mortgages in Israel16 LIBOR Index Dec-985.2% Dec-996.5% Dec-006.0% Dec-012.4% Dec-021.4% Dec-031.5% Dec-043.1% Dec-054.8% Dec-065.3% Dec-074.4% Dec-082.3% Dec-091.0% Dec-100.8% Dec-111.1% Dec-120.8% Feb-130.8% Source: http://www.fedprimerate.com/libor/lib or_rates_history.htm

18. Indexes Compared: Yearly Averages Mortgages in Israel17