Real Israeli Mortgage Rule #5--Consolidate Debt Early

I haven't written a Rules article for a while. As more and more of my clients are asking about debt consolidation, I need to address this.

It is possible in many cases to get a debt consolidation loan using your home as collateral. This makes a lot of sense for many reasons: it reduces your monthly payments, the interest on a mortgage is much lower than the interest on corresponding loans and the amount of time over which your loan amortizes can be much longer.

However, mortgages are not simple, not without cost, and not quick. We also have to be more cautious than usual with the banks, as your being between a rock and a hard place is a prime opportunity for the bank to profit. Bank A is more than happy to relieve your debt from Bank B, but they see no point in offering you even their second best rates. We need to tell your story properly and bring it to the right branch of the right bank (this will differ from borrower to borrower). We still won't get you a deal like a purchase loan, but it will be under much better conditions than consumer debt.

Why are they still offering more debt?

It's amazing that we still hear the commercials on the radio encouraging us to take "just take 40K" as if it were a gift. The rates being charged are amazing, prime + 4.5, 12%, or even worse. If you have anything on "credit" from the wonderful credit card companies, you are likely paying even higher. Expect similar rates on your overdraft.

The most important part about a debt consolidation loan is that you need to get it well before you need it. The banks don't really care about your property too much. So long as you are within their lending guidelines, they'll make the loan.

What they really care about is the financial competency of the borrower. Can you make the payments? Do you have a history of missing payments? Is your credit history clean? Is this loan a one-time reset of your financial situation which will put your house in order?

It's OK if you have some overdraft. It's OK if you have some debt. However if you have been missing payments on debt, it will be difficult to refinance you into a bigger loan. If there is a good chance that you  will need a loan, the time to refinance is as early as possible.

Real Israeli Mortgage Rule #5: It's OK to get a debt consolidation loan, but you have to get it before you need it.


Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Your mortgage and the daf yomi

The page of Talmud that was studied today by Jews all around the world in the "Daf Yomi" (daily page) study system, was Maseketh Bikuroth, page 29 in the Babylonian Talmud. We started here at the very bottom of the page and continued on the next page:

משנה: הנוטל שכר להיות רואה את הבכורות אין שוחטין על פיו אא"כ היה מומחה כאילו באילא ביבנה שהתירו לו.

גמרא: ....בשלמא בעל מום משום דקא שרי ליה אלא תם אמאי דאם כן אתי למיחשדיה ואמרי, האי בעל מום, תם הוא, והאי דקא שרי לי משום אגרא

[Translation of Gemara from this site (pdf of the specific text): MISHNAH. IF ONE TAKES PAYMENT FOR SEEING THE FIRSTLINGS, THEY MUST NOT BE SLAUGHTERED BY HIS INSTRUCTIONS, UNLESS HE WAS AN EXPERT LIKE ILA IN JABNEH WHOM THE SAGES  PERMITTED TO ACCEPT FOUR AS FOR SMALL CATTLE AND SIX AS FOR LARGE CATTLE, WHETHER UNBLEMISHED OR BLEMISHED.

gemara...WHETHER UNBLEMISHED OR BLEMISHED. Now, we quite understand this in the case of a blemished firstling, because in this case he permits it; but in the case of an unblemished firstling, why (does he take payment)? — The reason is that otherwise he might be suspected, and it might be said that the animal pronounced blemished is unblemished, and the reason he permits it is because he receives payment.]

Can we eat the calf? Not if we are relying upon the bank.

I never studied Torah in English. Quite frankly it looks a little corny to me. I understand the Aramaic better than I do the English. I'll try to work with what I have here. We are discussing whether or not it is OK to eat a first-born cow after it was pronounced blemished by a paid expert. Why? Because we fear that the expert will feel obliged to pronounce the cow blemished, otherwise he will be endangering his business.

[If the first-born offspring of a cow or sheep is a healthy male, then it must given to a Cohen. If it has some sort of permanent problem, then it remains with the owners. Therefore it is very lucrative to have your calves proclaimed "blemished" by "experts".]

My father recently wrote to me about problems with his dentist. It seems that every time he goes for a visit they want to remove another tooth. Have you ever taken a tire into to be checked? More often than not you need to replace at least two tires if not all four if you rely upon the advice of the guy "fixing" the tire.

When you go into your bank, it is exactly the same. The mortgage clerk at your local bank is paid by the bank, not you. His interest is the bank's interest, not yours.  Despite whatever kind of nonsense they may say in their radio ads, they are trying to sell whatever products are the most profitable for the bank, not for you. Unlike us at Nahala Home Mortgages, where we get paid exclusively by our clients. Our only interest is the client's interest.

If you are considering taking on hundreds of thousands to millions of shekels in debt, this is not the time for cutting corners. Don't rely on your bank's advice, and don't rely upon what you heard from friends or  read on the internet.

Every case is different and needs to be planned differently. You should always consult your qualified Israeli Mortgage Advisor before you make any decisions.

Limit your exposure to the Euro with a home in The Land

Greece was just a prelude. As I have been saying for years, and repeating every few months, the Euro is a mess and getting messier. Greece's economy is minuscule compared to big countries like Italy. When Greece has problems the world is concerned. When Italy has problems, the world shivers with fright.

Greece's economy, according to official EU stats, is around 2.5% of the Eurozone, or 1.8% of the EU member states. Italy sports the world's 8th largest economy, 17% of the Eurozone, or nearly 13% of all of Europe. You can play around with the numbers yourself at Eurostat, the home of European statistics. The specific numbers that I used are available here. If you are an American or a former American think that Greece is like Rhode Island, and Italy is like California.

Greece and Italy will have new governments. Both countries are offering economists in an effort to calm the world. I won't pretend like I know who these people are, I only know what I know from the press. Italy's Monti looks like exactly the type of Eurocrat that got us into this mess to begin with. His main accomplishment in life was in developing  and strengthening the Euro and in suing Microsoft. As I write these lines he is preparing to introduce his first lot of reforms to the Italian Senate. The yield on Italian bonds just went back up over 7%, meaning the markets have little faith in his success.

Greece's new man is Lucas Papademos, another economist who features great accomplishments such as being Greece's version of Stanley Fischer and a proud vice-president of the European Central Bank. [Meanwhile Greek students continue to violently protest. They ask for "Bread, Education and Freedom". I don't know if this translates well. I think they mean "freedom from" as in freedom from responsibility, working, etc., rather than "freedom to" such as freedom to work, freedom to prosper, freedom to disagree with the leftist mob, etc.]

These guys have come to bury Europe, not save it. Who got them into their mess? What did their central bankers do while Europe spent the next two generation's income? If these are the guys who are going to save the Euro, I say jump ship as soon as possible.

Let's say you have an Israeli mortgage which is indexed to the US$. At this point I really can't guess what is going to happen in the short term with the shekel-dollar exchange rate. My feeling is that the dollar will rise slightly only because the Euro is crazy and the dollar is regaining its luster as the coin of reserve. If you have income in dollars, I would probably leave my mortgage indexed to dollars because of uncertainty. Most other people should consider refinancing into mainly shekel based loans.

Italian olive oil. Olives are the sleeper
statistic that we should be watching.

But what do you do if you live in Europe, are a proud member of the Tribe, and are concerned about the solvency of your Euros? Can we protect your savings?

All members of the Tribe should have a home in The Land, and we pray that they will have the courage to eventually live here full time. A lot of our brethren from European Babylon have already purchased a home in The Land, most of them paying cash. Most of these homes are currently worth a whole lot more Euros then they were when purchased.

Here is my suggestion: buy additional properties in Israel. Transfer some money to Israel, or you can even mortgage a property that you already own here. For most properties, the payments on a 50% loan-to-value mortgage can be covered by a typical rent.

We have a huge variety of mortgage types available that will help protect your investment and balance out market uncertainties.

Don't try to protect your money by just buying a flat in Israel. Protect your money by buying two! Buy each of them with a 50% mortgage which will be paid by the incoming rent. Not only will you be protecting your money, you will be preparing for your future. Once you eventually come Up to The Land, the additional flat will provide you regular shekel income, a place for your kids to come live.

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

So much for not slipping on the Greece

It sure didn't take long for the Greeks to not save Greece.
http://mobile.nytimes.com/2011/11/02/world/europe/markets-tumble-as-greece-plans-referendum-on-latest-europe-aid-deal.xml
They're going to take a referendum. The question will be:
Would you rather:
1. Adopt really tough austerity measures, getting less while paying more, and save the Euro and Greece's good name. OR
2.  Default on your sovereign debt, continue milking the next generation until complete collapse (it won't take long with no ability to borrow), destroy the euro and enjoy another short period of the easy life.
I'm taking bets on number two winning the referendum.

What do you get if you take away 500 and add 1000?

The title is not a trick-math question. The answer is that you get 500 more.

In this case the 500 is billions of Euros.

EU leaders have announced that they have made a deal to "save" the Euro.

Here is a summary of the plan as I understand it:

The Eurocrats think that the economy is one big game. It isn't a summer camp game

or a reality television show, it is the real world and their silly climate and socialist games

are ruining lives. It shouldn't surprise us to see the state of their economy.

The European Financial Stability Facility will be increased by a 1 Trillion Euros. At the same time, banks will erase half of Greece's debt. This means that banks will erase 500 B in Greek bonds.
[Somehow the Greeks thought that this was not a good deal for them. It's kind of like a bank saying to you, "You can't make your mortgage payments because you're spending too much money on ski trips, cigarettes and a 4x4 that's never been off road, no problem, let's just say you owe us 500K instead of 1M."]

How many Euros are there anyway? We have different ways of measuring the supply of money. The most appropriate to answer this question is the measure called M3. You can see the official amount of Euros in existence in this document, published by the European Central Bank. If you scroll down to the very bottom of the document, you will find the number we are looking for: 9,817,812,345,678 more or less. They are going to wipe around 500 B off of this number, whilst adding 1T at the same time. So in the end, they are diluting the flimsy Euro by 5%.

In the very short-run, this will bolster the Euro and the stock markets. They have already factored in the possibility of a Euro-collapse, so a 5% dilution seems like good news.

In the long run, it is really bad news. The way to deal with Europe's crushing problems is a massive roll back of socialist programs. Instead, occupiers and rioters want an increase in social programs, and governments will have a hard time replacing socialism with freedom. If it costs them 5% just to set tiny Greece right, what will happen when Italy or Spain fails? How much will they dilute their coin then?

Europe has stymied economic and scientific growth through superfluous regulation. They have sacrificed innovation at the alter of European Cooperation and bad science. Rather than printing money, why don't they just ax this ridiculous program, 500K saved! We can easily find another 1000 such programs and save Greece much more easily.

Climate change and green jobs have squandered hundreds of billions and crushed economies. If you don't follow US news, try googling "Solyndra". This is just one of a long list of examples that would be hilarious if they weren't true. Unfortunately the story in Europe is far worse.

The road to recovery will not be easy. It will probably be impossible to undo all socialist programs quickly, but they need to start. More importantly, they need to remove the artificial barriers that have crushed European science and industry. Can they do it? I think not.

The Euro continues to be crud, and we continue to believe in its long term crudiness.

Who should refinance now?

Is it time to refinance? For many of our clients, the time may be right.

For most of you in the middle of the road, this is the time to stay put. If you want to save a few hundred shekels a month, now is not the time. However, if:

• You know that you are happy and that there is little chance that you will want to refinance any time soon. Or,
• You don't mind a speculative short term play that you might have to refinance some time soon. Or, 
• You have a relatively small loan to your home's value and you want to use your equity to buy an additional property. 

This could be a very good time to refinance, for vastly differing reasons. I will only discuss the first two here. If you are interested in using your equity to invest in foreign real estate, please read this post.

Falling Euro, copyright The Independent

The real estate market is standing still right now. If you hear the banks quoted in the press saying something like there is "a 20% reduction in new mortgages" you should know that they really mean an 80% reduction, but are afraid to exasperate the market that has been profoundly funked by the tent protests. In the meantime, the tents have rolled up, but there are still very few real estate transactions and the banks are still empty. Ironically, the socialist-despised market forces of supply and demand are making the banks compete for borrowers and are pushing down the costs of some mortgage types.

There is a huge however here: the change of rules by the Regulator of the Banks means that comparable mortgages to what you now have may no longer be available, especially if you are one of our long-time clients. For instance, if your current mortgage is 80% prime rate, you will only be able to have 33% of your loan prime after a refinance. However, we can currently get superior prices on non-indexed fixed rate loans. Right now these loans are being sold at under the long term average of the prime rate. If you are fairly sure that you won't be moving again, these loans are probably right for you. As always, it is critical that we manage the loan.

The second group can take advantage of a steadily weakening Euro to reduce their debt. As before, you can only take up to a third of your debt in a highly-volatile loan. However, the Euro might disintegrate. I have been talking about the Euro play for four years now. On Oct. 1, 2007 I wrote that it was a good idea to get Euro linked mortgages. Let's say that you took out a Euro indexed loan at the time that I wrote that piece. If you had a 1M NIS loan with interest only payments, you would currently owe 873K NIS. If you took the same loan indexed to the US$, you would now owe 940K NIS Compare this with the same loan indexed to inflation you would now owe 1.14M NIS.

Has the Euro completed its slip? I think not. I see no way that there will be any long term strength in the coin. Did you see where Italy was asking China to buy its bonds before being downgraded? It's so bad that countries like Brazil are lecturing Europeans about responsibility. See here: Brazil's Mantega: Europe Must Save Itself.

I think that there is a real chance that the Euro might slip 20% over the next year. This is a great time for us to get you a loan indexed to the Euro. Your debt will dissipate together with the Euro's value. 

Every case is different, and you should always consult your qualified Israeli Mortgage Advisor.

Do the banks and Super-Sol really differ?

The Marker newspaper recently did a piece about the prices charged by the same chain in different locations. It was fascinating. You can even read it, translated into English, here:
Super-Sol charges more in Dimona than in Ramat Gan

Super-Sol deal, just like the bank

They wasted no effort on an easy story. They didn't compare your local Super-Sol Sheli to the mega Super-Sol Deal out in the hangar center or to some local discount chain. No, they were comparing similar stores in the same chain in different locations. The existence of these daughter chains is an example of price discrimination, a tell-tale sign of monopolistic power, where the supplier takes a different price from each customer.

It is easy to understand that there are some local conditions that can lead to variance in prices, like the high cost of rent in the city center or the high cost of bringing products to distant stores. (The burden of delivery to the retail site falls on the manufacturer or importer in Israel.) This in no way can explain why a store with expensive Ramat Gan rent has prices 30% higher than in Dimona. Only (lack of) supply and (no lack of) demand can explain this. Each store tries to maximize its profits according to the local market conditions and will vary their prices to make as much as possible from each customer.

The banks are no different. Each branch office tries to maximize its profits. You do yourself no favors by going to your branch. In fact, you are likely doing yourself a gross disservice. The bank is trying to increase its profit, not to serve.

However, as opposed to groceries, you don't buy a mortgage every week. If you live in Dimona, you're not going to go to Be'er Sheva for a package of crackers. Super-Sol knows this, so they charge you 30% more. The banks also want to do something similar, but we won't let them. We work with a few select branches spread across the country where we can get our clients the best deals. The chances are that this will not be your branch or the branch closest to your house.

If you haven't already read my post on the real rules of Israeli mortgages, please do.

Contact your Israeli Mortgage expert