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Mortgage in Israel

October 6, 2023 762 Time to read: 10 min.

Whether you are a first-time homebuyer, a seasoned property investor, or an expatriate seeking to establish roots in Israel, understanding the nuances of the mortgage system is vital. Whether you’re considering a fixed-rate mortgage to provide stability in uncertain times or an adjustable-rate mortgage to seize market opportunities, this guide will equip you with the knowledge needed to make informed decisions.

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    Mortgage in Israel is quite accessible not only to citizens, but also to foreigners. The crisis did not suspend the issuance of mortgage loans and did not significantly affect the terms of mortgages. Nowadays, Israel has two state mortgage lending programs.

    Mashkanta– a mortgage loan. This program is funded from the budget, and everyone can count on it. The subject of this mortgage can only be housing on the primary market or funds for the construction of a house. At the same time, the apartment on the primary market must be fully completed and with repairs, so the buyer can immediately move in and live there.

    • State mortgage loan. In fact, it is the same as a mortgage loan – it has to be paid back and it accrues interest. State mortgage loans are available to all citizens in Israel, including foreigners. A major difference from all other types of mortgage lending is that the loan is issued only for the purchase of housing strictly defined by the Government of Israel. Often these places can be defined by a capacious phrase – “developing areas”, that is, in fact, a place with poorly developed infrastructure and quite inconvenient conditions, both for living and in terms of making money.
    • Commercial mortgage loans issued by commercial banks. Such loans are also available to everyone, and they are issued for any type of housing – apartments and houses in the primary and secondary markets, as well as for the construction of private houses.

    Conditions for mortgage lending

    Until 2008, real estate prices in Israel stood still. And in 2008, when the world’s banking sector and the real estate market struggled, the Israeli Central Bank lowered rates on loans.

    Firstly, developers began to actively borrow for construction, and investors massively bought housing for subsequent rental. This caused a continuous rise in prices, which lasted until 2016. It was then that the Israeli government began to take measures to cool the market, as experts had seriously talked about the emergence of a bubble. After all, at the end of 2015, the country was issued a record €16 billion mortgage.

    New taxes on housing, as well as an increase in interest rates on loans were able to cool the buying fervor. According to the results of 2016, the volume of lending stopped growing, and in 2017 has already recorded a decline in interest in registration of new loans. Prices and sales of housing to foreigners also began to fall.

    The largest banks in Israel: Bank Hapoalim, Bank Leumi, Israel Discount Bank, Bank Mizrahi-Tefahot, Bank Benleumi.

    In Israel, a foreigner can apply for a loan to buy a home, even without being in the country. Of course, in such a case, on the spot, we will need an official representative of the borrower.

    There are its own disadvantages. For example, unlike the citizens of the country, foreigners can count on a loan of a maximum of 50% of the value of the object. For residents of the country, this bar is much higher – up to 75%. However, if a foreign borrower has deposits in Israeli banks, securities or other real estate, you can get more – up to 60%.

    Israeli banks are very serious about the solvency of borrowers. Strictly monitor that the monthly mortgage payments do not exceed one-third of the monthly income of the borrower. Otherwise, the loan will not be approved.

    For foreigners in Israel, there is an available mortgage, which can be made in any bank in the country, and still a loan. As for the latter, this is a loan that can be taken in addition to a mortgage. But it is less favorable than a mortgage, due to higher rates – 5-12% per annum.

    Can a foreigner get a mortgage

    The statuses of repatriates and non-residents have significant differences. Both are not citizens of Israel. But the terms for them are significantly different.

    Get the opportunity to repatriate to Israel and formalize this status can only ethnic jewish people. They are covered by the preferential lending system

    Non-residents – people who do not pay taxes, can not qualify for permanent residence in Israel or Israeli citizenship, but want to have real estate in this country. They will be able to do it without any problems in 2023, but they are not entitled to any benefits.

    Types of mortgages in Israel

    In Israel, there are several types of mortgages available to homebuyers. The specific terms and conditions of these mortgages may vary from one bank or lending institution to another.

    Government mortgage loan (mashkanta)

    • is issued against the security of the purchased real estate
    • covers up to 75% of the cost of housing
    • loan interest – 2-4% per annum
    • available only for Israeli citizens who are residents of Israel

    Commercial mortgage

    • available to non-residents and foreigners
    • does not require government approval
    • covers up to 75% of the cost of housing
    • interest is calculated by the bank that issues the loan

    In Israeli banks, you can and should bargain. The terms of any loan are discussed with the client or his financial advisor. If you have any questions about interacting with banks in Israel, please contact our experts, we will help you.

    Сonditions for repatriates

    Mortgage in Israel for repatriates is called “Mashkanta”. The main papers have already been collected during the registration of an Israeli residence permit, so it is not necessary to reassemble the package.

    Terms of mortgage in Israel for repatriates:

    • mortgage term – from 15 to 28 years;
    • up to 70% of the cost of housing is covered by the bank.
    • up to 15% of the price of housing is paid to the bank by the state. Term – 15 years. The annual rate is 1%. The subsidy is considered a gift, if during this time the dwelling has not been sold. That is, no one will demand its return.

    If the apartment is sold, the state will demand back the subsidy 15%. To them it will be necessary to add an adjustment for inflation – another 2%.

    Terms of mortgage lending for non-residents are slightly different. Loan in Israel for an apartment for Russians will repay only 50% of the total cost of housing. If the apartment was valued at €500 000, the bank will issue only for €250 000.

    The person will have to pay the remaining half of the loan himself – as a down payment. If the client is under 20 years old, he can also take out a loan. But the loan term in this case is strictly up to 28 years. At the same time, the loan term for an elderly borrower – only up to 15 years.

    Mortgage payments should not exceed 30% of earnings. If a person earns from 2000 euros per month, he can not pay more than 700 euros/30 days.

    If the payment will be more than 30% of monthly earnings, the applicant will not be able to take the loan. The loan body for non-resident borrowers is not static. It is divided into 3 unequal parts: usually 40% (real estate price index) + 45% (US dollar exchange rate) and another +15% (currency basket index).

    The principal loan can change all the time. But the amount that has to be paid each month remains constant.

    Interest rates for buying real estate in Israel

    Interest rates on mortgage programs are 2-4% per annum. But much depends on the credit history of a particular potential borrower. In some banks rates can reach 7%.

    Usually, the size of the rates depend on the term of the loan. The longer the loan term, the higher the rate, and vice versa. Also do not forget that the mortgage in Israel for repatriates, as well as for foreigners, in recent years is becoming more expensive. Therefore, we advise you to always look at the latest data on loan rates.

    In addition, the mortgage in Israel is differentiated. That means that the body of the loan is divided into at least three parts, each of it is tied to a certain anchor.

    This is a mandatory requirement of the Central Bank of the country. For example, one third is tied to the price index, one third to the dollar exchange rate, one third to the currency basket. The loan can be divided into three unequal parts, for example, 40% – 40% -20% . In comparison, in European countries, the mortgage loan is tied to only one anchor, the Euribor.

    The rate on each part of the loan is floating and will fluctuate depending on changes in the anchor. That is, the value of the money that the bank provides to the borrower may go down or, conversely, up over time. So don’t be surprised that the total amount of the loan will fluctuate. But the monthly payments will remain fixed.

    Documents for applying

    To obtain a mortgage loan for the purchase or construction of housing in Israel, the borrower needs to submit the following documents:

    • application form;
    • passport;
    • passports of guarantors (if there are guarantors);
    • certificate of income, tax return for 2 years;
    • certificate of ownership of real estate;
    • if necessary, notarized consent of the seller’s spouse to conclude a sale and purchase agreement;
    • certificates of ownership of other real estate and automobile, proof of additional income from rent, shares, etc.;
    • bank account statement on the movement of funds

    The last three items are optional, as banks may require additional documents, and may be limited to the standard set. It all depends on the requirements of a particular credit institution.

    But what is invariable for everyone is the rules of paperwork. They must be translated into Hebrew or English and notarized.

    If there are no problems with the documents and your creditworthiness is not in doubt, the application will be approved in 1-2 weeks.

    Additional costs

    Additional costs of obtaining a mortgage loan in Israel are small and usually do not exceed € 300. Much more serious costs – up to 15% of the value of the property will require payment of tax on the purchase, and realtor’s and lawyer’s fees.

    Property valuation about €150
    Mortgage processing fee up to €15
    Property insurance €50-100 per year
    Borrower’s life insurance €50-100 per year (the price depends on individual conditions, which depend on the health of the person, so the figure may be higher)
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