The Bank of Israel’s Banking Supervision Department, headed by Yair Avidan, issued a draft circular last week aimed at regularizing reverse bank mortgages. A reverse mortgage is a loan taken out by borrowers aged 60 or over secured on their existing home. The loan is repaid upon the death of the borrowers, with the mortgaged asset serving as the source of repayment.
Under the rules proposed in the draft circular, a reverse mortgage will be permitted up to 50% of the value of the mortgaged asset, with an expected funding percentage not exceeding 60%. In other words, if the repayment of the principal of the loan and the interest are both due after the death of the borrowers, the expected interest (based on the life expectancy of the younger borrower) will be added to the loan amount. for the purpose of calculating the proportion of the asset value.
The loan will be repaid by selling the asset after the death of the last borrower. When the last borrower has left the property, the heirs will be able to request a twelve-month loan repayment deferral in order to raise funds to make the repayment without selling the property.
The draft circular specifies that banks will not actively market reverse mortgages and will have to adapt the process of selling these products to an elderly clientele.
Banks will be able to provide a reverse mortgage on a variety of interest rate tracks, either as a lump sum or as a regular monthly payment. Reverse mortgages were originally designed to help elderly homeowners with living expenses, but in recent years they have primarily become a means of liquidating an inheritance and providing children with equity to buy their own. own home while their parents are still alive.
The only bank currently offering reverse mortgages is Bank Mizrahi Tefahot. In 2021, all insurance companies have succeeded in this field by granting loans on an indexed interest track. Other banks have announced their intention to enter this market and they will compete with insurance companies.
Published by Globes, Israel business news – en.globes.co.il – on October 11, 2022.
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