Financial Experts Weigh Using Savings Fund or Loans When Buying Property in Israel
As interest rates reach historic highs and inflation erodes savings, many Israelis face tough financial decisions when purchasing real estate. Financial advisor Tomer Veron, known for his podcast "The Money of Life Itself" and book "How to Take a Mortgage," explores the dilemma of whether to withdraw from a tax-advantaged savings fund (Keren Hishtalmut) or take a loan against it when buying a home.
The case of Maya and Eitan illustrates this challenge: they considered withdrawing 150,000 shekels from their 200,000-shekel fund to reduce their mortgage, but also weighed leaving the fund intact and taking a larger mortgage or a loan against the fund. Each option provides the needed funds but affects the family’s financial balance differently.
Veron advises first assessing the role of the savings fund in one’s investment portfolio and evaluating liquidity, monthly repayments, and remaining cash after purchase. If the purchase is only feasible by withdrawing the fund, it may be worth reconsidering the property price or deal altogether. He emphasizes that withdrawing the fund is not inherently wrong but should be part of a reasonable plan rather than a necessity.
If the fund remains untouched, it continues to grow tax-free, offering flexibility to reduce debt later if needed. Conversely, withdrawing is less reversible and may incur costs. Taking a loan against the fund, especially with current lower interest rates, can be attractive but may strain monthly cash flow due to shorter loan terms and higher repayments.
Options like partial balloon loans can reduce monthly payments but require a lump sum repayment later, posing risks if funds are not available. Increasing the mortgage instead spreads repayments over 25 years but results in higher total interest paid. Ultimately, Veron stresses prioritizing overall affordability, liquidity, and long-term financial health over focusing solely on interest rates or fund yields.
He concludes that the savings fund should often be the last resource tapped, reserved for maintaining liquidity and investment potential after purchase, unless the family’s main goal is to minimize debt. This balanced approach helps ensure sustainable homeownership without compromising financial stability.
