Harel Insurance Enters Mortgage Market, Challenging Banks with Higher Loan-to-Value Ratios

Harel Insurance is making a significant move into the mortgage market, offering terms that traditional banks cannot match due to regulatory restrictions. The company is providing financing of up to 80% of a property's value, loans up to NIS 7 million, and repayment periods extending to 40 years, though the 80% financing is capped at 60% of the loan amount. Harel also allows borrowers to defer principal payments for up to ten years, paying only interest during that period on amounts up to NIS 300,000 or 15% of the loan.

These offerings contrast sharply with bank regulations set by the Bank of Israel, which limit financing to 75% for first-time homebuyers, 70% for those upgrading their homes, and 50% for investors, with a maximum term of 30 years. Insurance companies like Harel are not subject to these specific limitations, creating a competitive advantage.

The increased loan-to-value ratios offered by Harel can significantly reduce the required down payment. For a NIS 2 million apartment, a first-time buyer would need NIS 500,000 with a bank loan but only NIS 400,000 with Harel's 80% financing. This difference can be crucial for potential buyers struggling to gather sufficient capital.

While the extended repayment period lowers monthly payments, it increases the overall cost of the loan. A NIS 1.2 million mortgage over 40 years would have a monthly payment of approximately NIS 5,550, compared to NIS 6,800 over 25 years. However, the total repayment over 40 years could be around NIS 2.66 million, over NIS 600,000 more than the 25-year term.

Harel's entry occurs in a rapidly growing non-bank mortgage sector, where companies like Mimun Yashir have already seen substantial profits from mortgages. Mimun Yashir reported a record net profit of NIS 74 million in the second quarter, with about half derived from its mortgage portfolio. Other players like Naoy and Luzon offer up to 85% financing through secondary liens, and insurance companies such as Clal Insurance and The Phoenix are also expanding their mortgage services. Despite this growth, non-bank mortgages still represent a small fraction, estimated at 1-3%, of the total NIS 630 billion mortgage market in Israel.