Harel Insurance Enters Mortgage Market, Challenging Banks

Harel Insurance is entering the mortgage market, offering loans with terms that banks cannot match due to Bank of Israel regulations. The company will provide financing of up to 80% of a property's value, loans up to 7 million shekels, and repayment periods of up to 40 years, though the 80% financing is capped at 60% of the loan amount. Additionally, borrowers can defer principal payments for up to ten years, paying only interest on amounts up to 300,000 shekels or 15% of the loan.

Banks are restricted by Bank of Israel directives to a maximum of 75% financing for first-time homebuyers, 70% for those upgrading their homes, and 50% for investors, with a 30-year repayment limit. Insurance companies like Harel are not subject to these limitations, creating a competitive advantage.

This move could significantly reduce the required down payment for buyers. For a 2 million shekel property, a first-time buyer needing a 500,000 shekel down payment at a bank would only need 400,000 shekels with Harel's 80% financing. For investors, the down payment could drop from 1 million shekels to 400,000 shekels on the same property, though this also increases their debt exposure and vulnerability to market fluctuations.

While the extended repayment period lowers monthly payments, it increases the total interest paid over the life of the loan. A 1.2 million shekel loan over 25 years might have a monthly payment of approximately 6,800 shekels, compared to about 5,550 shekels over 40 years. However, the total repayment over 40 years could be around 2.66 million shekels, over 600,000 shekels more than the 2.04 million shekels paid over 25 years. The principal deferral also offers only temporary relief, with deferred amounts needing to be repaid later.

Harel is not the only non-bank entity entering this space; other insurance firms like Clal Insurance already offer mortgages, and The Phoenix is expected to follow. Harel previously piloted a mortgage program in 2022 but discontinued it. The timing of this launch is strategic, as new regulations from October 1st may further limit the financing banks can offer by requiring them to account for prior encumbrances on a property.