Today, Israel Discount Bank (TASE: DSCT) launched a venture for providing what are known in the US as reverse mortgages for the third age population. The product is a loan for an unlimited period without repayment of principal or interest for people over 67 who mortgage their homes. The home must be worth at least $200,000.
The loan can amount to 20-40% of the value of the property, up to $500,000 per borrower. Borrowers can continue living in the mortgaged property for as long as they wish.
The loan carries index-linked interest of 6.9%. Half the loan is made available on the day of the deal. The rest is given after five years.
The loan is repaid at the borrower's request, or when he or she dies. The bank is repaid out of the estate or through selling the property. In any event, the bank has no right to receive more than the value of the property, even if the loan balance is higher. In other words, this is a non-recourse loan, for which the bank cannot seek repayment from the borrower, but only from the property.
Such loans are a new product in the Israeli banking market. They provide old people with a financial solution using their home as security. The mortgage banks do not give loans to people of this age.
Published by Globes [online], Israel business news - www.globes.co.il - on April 19, 2005