Supervisor of Banks Yoav Lehman today distributed the draft amendments for granting mortgages. The amendments change the mechanism for calculating the variable interest rate on housing loans.
Henceforth, the banks will not be allowed to offer limited-time discounts on variable interest loans, where the discount on the interest rate is only for the loan's initial period. The margin with the variable interest margin range must be uniform throughout the loan period.
"The banks wanting to give discounts to their customers will have to give it for the entire loan period. The uniform margin will also apply to fixed-interest loans granted in installments over several years, even if the variable interest rate is converted to a fixed interest rate," stated Lehman.
"This requirement, which prevents the unilateral widening of the margin above the loan base, will apply to all banks and all types of loans, including non-housing loans."
Lehman said in recent years the mortgage banks had granted substantial discounts for the initial period of variable interest loans, then charged a high interest rate for the rest of the loan period.
As a result, customers found it difficult to compare the prices of variable interest loans offered by different banks, and between different types of loans. The Bank of Israel's attempt to rectify this situation by tightening its full disclosure policy failed to solve the problem.
The amendments broaden the information the banks must provide loan applicants, including information about the direct and indirect costs of the loans and about other housing loans offered by the bank, in order to enable customers to better compare the different loans offered by the different banks.
Israel Consumer Council director Galit Avishai told "Globes" today, "The Bank of Israel should order the mortgage banks to compensate borrowers who took variable interest mortgages for the extra interest collected. I estimate the compensation could total NIS 200 million."
Published by Globes [online] - www.globes.co.il - on November 13, 2003