The Banking Supervision Department of the Bank of Israel, headed by Yair Avidan, published a draft circular last week designed to regularize reverse bank mortgages. A reverse mortgage is a loan taken by borrowers aged 60 or more secured on their existing home. The loan is repaid when the borrowers die, with the mortgaged asset serving as the source of the repayment.
Under the rules proposed in the In the draft circular, a reverse mortgage loan will be allowed up to 50% of the value of the mortgaged asset, with a forecast financing percentage of not more than 60%. In other words, if the loan principal repayment and the interest are both payable after the death of the borrowers, the forecast interest (in accordance with the life expectancy of the youngest borrower) will be added to the amount of the loan for the purposes of calculating the proportion of the value of the asset.
The loan will be repaid by selling the asset after the last borrower has died. When the last borrower has left the asset, the heirs will be able to request a twelve-month postponement of the loan repayment in order to raise funds to make the repayment without selling the asset.
The draft circular states that the banks will not actively market reverse mortgages, and will have to adapt the process of selling these products to an elderly clientele.
The banks will be able to award a reverse mortgage loan on a variety of interest-rate tracks, as a lump sum or as a regular monthly payment. Reverse mortgages were originally designed to assist elderly homeowners with their living expenses, but in recent years they have mainly become a means of making an inheritance liquid and of providing children with equity for buying homes of their own while their parents are still alive.
The only bank currently providing reverse mortgages is Bank Mizrahi Tefahot. In 2021, all the insurance companies entered this field one after another, providing loans on an index-linked interest track. Other banks have announced that they intend to enter this market, and they will provide competition to the insurance companies.
Published by Globes, Israel business news - en.globes.co.il - on October 11, 2022.
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