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Regular Bank Loan
- ✖ High interest rates (usually double-digit)
- ✖ Short spread (up to 5-7 years)
- ✖ High and burdensome monthly payment
- ✔ Relatively fast approval process
Why Choose a Renovation Mortgage?
Many property owners in Israel dream of upgrading their existing property. Whether it's expanding the living room, adding a room for a new child, or simply modernizing old infrastructure - renovation is one of the best ways to increase property value and improve quality of life. However, the financial cost of comprehensive renovation can reach hundreds of thousands of shekels, an amount not always available in the checking account.
The most common mistake is taking a "general purpose loan" or regular consumer loan from the bank to finance the renovation. These loans are typically characterized by high interest rates and short repayment periods (up to 5-7 years), creating a heavy monthly burden on the family budget. In contrast, a renovation mortgage is essentially an expansion of the existing mortgage (or taking a new mortgage on an existing property), allowing you to receive money under housing terms - meaning significantly lower interest rates and long-term spread of up to 30 years.
Food for Thought
In the process of professional mortgage consulting, we examine not only the renovation cost, but the family's overall repayment capacity. Sometimes, spreading the renovation cost over 20 years will allow you to renovate "with peace of mind" without being strangled by monthly payments, and in some cases it can even be combined with mortgage refinancing and overall improvement of terms for the existing loan.
Regular Loan vs. Renovation Mortgage
What's the big difference and why does it pay off?
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Renovation Mortgage
- ✔ Attractive housing interest rates
- ✔ Long spread (up to 30 years)
- ✔ Low and convenient monthly payment
- ⚠ Requires appraisal and bureaucracy
Process of Getting a Renovation Mortgage
Getting approval for a mortgage for renovation differs slightly from buying a regular apartment. The bank wants to ensure the money actually goes to property improvement. Here are the main steps in the process:
1. Budget Planning and Getting Price Quotes
Before approaching the bank, you need to know how much the renovation will cost. Collect price quotes from contractors and organized quantity sheets. This is a critical step for both first-time home buyer mortgage consulting and for housing upgraders.
2. Appraiser Assessment
The bank will require preliminary appraisal. The appraiser will assess the current home value and the expected value after renovation ("completed value"). The mortgage amount will usually be derived as a percentage of the property value.
3. Preliminary Approval and Portfolio Building
At this stage, we'll build a mortgage portfolio tailored to your repayment capacity, combining tracks that will protect you from interest rate and index increases.
4. Fund Release in Installments
For major renovations, the bank doesn't always release all the money upfront. Sometimes the money is released in installments according to renovation progress and appraiser approval.
Tips for Saving on Renovation Mortgage
Take Advantage of the Refinancing Opportunity
If you're already opening the mortgage file to add money, it's an excellent opportunity to check the feasibility of mortgage refinancing and improving terms for the existing debt. Sometimes the savings from refinancing can finance the interest on the renovation addition.
Pay Attention to Financing Percentages
The Bank of Israel limits the total financing percentage (existing mortgage + addition). For a single apartment you can reach up to 75% of property value, and for a replacement apartment (housing upgraders) up to 70%. Professional mortgage consulting will help you calculate the exact limits.
Define a "Safety Cushion"
Renovations tend to become more expensive during the process. When requesting the mortgage, it's recommended to ask for an amount slightly higher than the price quote (about 10%-15%) for unexpected costs. If you don't use the money, you simply won't withdraw it from the bank.
Planning a Renovation? Don't Pay Premium for the Money
At Ariel Achon Mortgage and Financial Consulting, we build the precise financing mix for your dream renovation. We'll save you unnecessary interest, exhausting bureaucracy, and costly mistakes.