Written and professionally reviewed by the Ailon Financing Solutions team
What is a mortgage mix?
A mix is the division of the mortgage between several interest rates. Instead of taking a million shekels in one route, they are divided between two to four routes that behave differently when the interest rate or the index moves.
The idea is simple: spread risk. If all the money is in one route and that route becomes more expensive, you absorb the full blow.
The main routes
| orbit | advantage | disadvantage |
|---|---|---|
| non-adjacent constant | The repayment is known in advance for the entire period | Highest interest rate, early repayment fee |
| constant linked to the index | A lower interest rate than a non-linked fixed one | The fund grows with the index, early repayment fee |
| Prime | Relatively cheap, no early payment fee | Fully exposed to Bank of Israel interest rate changes |
| Changes every 5 years | Low initial interest | Defined exit points, uncertainty in the future |
The mistake most people make
Most people start with the question "what interest rate do I get". This is the second question, not the first.
The first question is What do you want your life to look like in five years?. From there build back.
A couple planning a third child in the next two years needs a low and stable monthly repayment, even at the price of a longer period. A self-employed person with seasonal income needs flexibility for early repayment without penalty. Those who plan to sell the apartment within seven years do not need to pay a premium for a thirty-year certainty.
The exact same mortgage, three completely different mixes.
The number no one shows you
The return ratio is the simplest tool to understand if your mix is good:
- Unmatched mix: may present a favorable initial payment but high exposure to the index, interest or exit fees
- A planned mix: will be examined according to the return, the total cost, the balance, the flexibility and the risk in different scenarios
On a mortgage of one million shekels, that's a gap of 200,000 to 300,000 shekels throughout the period.
It is not money that the bank gives up out of spite. It's money found in the difference between a mix built in ten minutes and a mix built correctly.
The four variables that determine the conditions
The bank does not look only at the interest rate. The mortgage terms are derived from a combination of:
- Borrower data — Age, marital status, education, employment experience
- The characteristics of the loan — amount, period, financing ratio
- transaction data — The price of the property against the market value
- Property conditions — Type, location, registration status
An improvement in one of them affects all of them. That's why a properly prepared and presented bag gets better terms than the exact same bag that is presented carelessly.
Years spread: the ignored parameter
The mortgage period is not just "how long". She is a tool.
- a short period = high monthly repayment, significantly lower total interest
- a long time = low monthly repayment, much higher total interest
Every year that is cut from the mortgage is a year of savings that goes into your pocket. On the other hand, a monthly repayment that suffocates you will make you take out expensive loans elsewhere, and this eliminates savings.
The exact point lies in your true repayment capacity, not the one that looks good on paper.
What is an interest rate auction and why is it the important stage
An interest rate tender is an arranged appeal to several banks at the same time, with the same portfolio, so that they can compete for you.
It works because a bank that knows it is the only one in the picture offers its terms. A bank that knows there are three more on the table offers its favorable terms.
This is the stage where the most significant part of the savings comes in, and it is almost impossible to do alone: it requires an identical and organized bag in several places at the same time, knowing who is flexible on which route, and a tight schedule.
When do you build the mix?
The mix was built in the fourth stage of the process, after there is already approval in principle. The correct order is:
- Getting to know and building a financial profile
- Planning the purchase budget
- Getting approval in principle
- Building an interest rate mix and auction
- Signature and execution
- The collateral phase
He who builds a mix before he knows how much money he is getting, builds on the sand.
The bottom line
A good mix is not measured by the lowest interest rate you achieved on one route. It is measured by the ratio between what you pay back and what you took, and whether the monthly repayment allows you to live the life you wanted.
If you don't know what the return ratio is in the mix that was offered to you, this is the first question you should ask.
Examine the mix as one unit
Check full scenario inThe mortgage calculator and compare alternatives bMortgage comparison calculator. The comparison should include a representative return, total cost, exposure to interest and index changes and flexibility for repayment.
