Bank of Israel moves to regulate reverse mortgages in the country

The move lays down some ground rules for how the loans can operate within the nation

The Bank of Israel — the nation’s central bank headquartered in Jerusalem — published a draft advisory document last week aiming to regulate the nation’s reverse mortgage business. This is according to reporting at Globes, an Israeli domestic daily business news publication.

The reverse mortgage loan within the country — available to residents aged 60 and older — has primarily been used by the nation’s borrowers to provide financial assistance to adult children who are seeking to buy their first homes, the publication explains. The regulations will impose rules regarding loan amounts, loan repayment and marketing practices.

“Under the rules proposed 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%,” the story reads based on the document. “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 is repaid after the final borrower dies or leaves the home, the document says. After the borrower exits, any remaining heirs will have a 12-month period of “postponement” to allow for the raising of funds to make repayment without the home’s sale.

The document also includes a provision related to the advertising of reverse mortgage loans, the story reads.

“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,” it says based on the reporting.

The loan can be offered at a variety of interest rates, and proceeds can come in the form of a single lump sum payment or monthly disbursements. The story also notes how reverse mortgage use has evolved within the country.

“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 story reads.

Currently, only one Israeli banking institution — Bank Mizrahi Tefahot based in Ramat Gan in the Tel Aviv district of the country — offers reverse mortgage loans to Israeli residents. Insurance companies are the more active business in the state offering the loans, the story says.

“In 2021, all the insurance companies entered this field one after another, providing loans on an index-linked interest track,” the story reads. “Other banks have announced that they intend to enter this market, and they will provide competition to the insurance companies.”

Read the story at Globes.

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