The Bank of Israel proposes amending the directive for fees on early repayment of mortgages by eliminating the borrower risk component when calculating the capitalization differentials fee. Borrowers who were assessed as high risk by the bank when they took out the loan, and were assigned a relatively high interest rate, will not pay capitalization differentials in respect of the risk component.
Currently, the calculation of the capitalization differential is based on the average interest rate known on the early repayment date, and on the actual interest rate on the loan. Since the interest rate on the actual loan is assigned in accordance with the bank's assessment of the borrowers' ability to repay the loan, a distinction has in effect been created between borrowers. Some borrowers, for whom the interest rate set for them on the loan was higher than average, are forced to pay a higher capitalization differentials fee than borrowers for whom the interest rate set for them on the loan was below the average.
Under the proposed amendment, the average interest rate in the mortgage market, according to which the repayment will be calculated, will not be compared with the borrower's interest rate on the loan on the date the mortgage was taken out, but will be compared with the average known interest rate on mortgages on the day the mortgage was taken out.
The Bank of Israel also proposes that the amendment apply to all early repayments carried out after it comes into effect. Early repayments of mortgages granted before the amendment went into effect, in which the interest rate on the loan was lower than the average interest rate known on the day the mortgage was taken out, will remain as it was before the amendment.
The proposal was drawn up after the Knesset Economics Affairs Committee discussed the issue, following a petition by Dr. Danny Ben-Shahar of the Technion.
Published by Globes [online], Israel business news - www.globes-online.com - on March 28, 2013
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