Harel Insurance Offers 40-Year Mortgages, Banks Warn of Danger

Harel Insurance has begun offering 40-year mortgages, a move aimed at attracting real estate investors and individuals struggling to afford housing. The company is providing up to 60% financing for property investors and up to 80% of the property's value for other borrowers, seeking to bypass traditional banks with more flexible terms.

While the extended repayment period lowers monthly payments, potentially making homeownership accessible to more people, experts warn of significant risks. Mortgage advisors, speaking anonymously, expressed concern that this could lead to an increase in defaults, as the long-term financial burden might become unmanageable for borrowers, particularly those with lower initial capital. Bank of Israel data does not currently track defaults at non-bank lenders, obscuring the true scale of potential problems.

Harel's strategy comes as demand in the housing market slows due to regulatory restrictions on financing and declining interest rates. By offering longer terms and higher loan-to-value ratios, Harel aims to capture market share from banks, particularly among investors who typically have 50% equity but are now being offered financing with only 40% down.

Bank mortgage advisors have labeled the 40-year mortgage a "dangerous move," predicting that many clients will ultimately be unable to meet their long-term obligations. They emphasize that while Harel may offer lower monthly payments, the overall cost of the mortgage will be substantially higher due to interest over the extended period. Despite potentially higher interest rates, Harel is targeting a specific demographic that prioritizes a manageable monthly payment over the total cost of the loan.

For example, a borrower who could not afford a 30-year mortgage on a 3 million shekel property might be able to afford a 40-year mortgage on a slightly more expensive property, with a significantly lower monthly payment. However, this comes at the cost of paying hundreds of thousands of shekels more in interest over the life of the loan. While banks generally recommend that monthly mortgage payments not exceed 30% of income, they have recently been approving loans up to 40%.