Kablan Loan Explained

A Halva’at Kablan (Builder’s Loan) is a specialized financing option in Israel, particularly useful for homebuyers purchasing property under construction. It helps buyers manage the financial strain that comes from buying a new home before it’s completed. Here’s a breakdown of how it works and how it can benefit you:

How a Halva’at Kablan Works:

1. The Players Involved:
   • The Buyer: You (the homebuyer) are pre-approved by a bank and make an initial down payment to the builder (developer).
   • The Bank: The bank provides funds to the builder in stages, tied to specific construction milestones.
   • The Builder (Kablan): The builder is responsible for managing the construction and covering the interest payments on the loan until the property is completed.
2. What It Does:
   • This financing model addresses two key challenges:
     • The initial down payment is generally lower than with traditional mortgages.
     • You can avoid paying rent and mortgage on a property simultaneously, as the builder covers the interest until the project is completed.
3. Stage Payments:
   • The bank doesn’t provide the entire loan upfront. Instead, it releases funds to the builder as construction progresses, based on agreed milestones (such as foundation completion, roofing, etc.).

Benefits:

• Lower Upfront Costs: You don’t need to pay the full amount upfront and can manage the initial payments with lower financial pressure.
• Flexible Financing: The staged loan releases can ease the burden during the construction phase.

Risks:

• Mortgage Eligibility: Pre-approval for a Halva’at Kablan doesn’t guarantee final mortgage approval when the project is completed. Banks reassess your financial situation before converting the builder’s loan to a standard mortgage.
  • To avoid issues, ensure a stable income and avoid accumulating new debt during the construction phase.
• Rising Costs: If interest rates rise or inflation increases (as many agreements are tied to the Israeli Consumer Price Index – Madad), your final monthly payments could be higher than expected.
• Increased Purchase Price: Some contracts may be linked to the Madad, meaning the price of the property could increase in line with inflation, impacting the total cost when it’s time to pay.

What You Should Know:

• Always review the terms of the Halva’at Kablan carefully. Pay attention to:
  • Who covers the interest payments during construction.
  • Whether the price is linked to inflation or the Madad index.
  • How the mortgage conversion process works once the construction is completed.

Consulting a professional before committing to this type of loan is highly recommended to ensure you’re getting the best deal and are fully aware of any potential risks.

Conclusion:

The Halva’at Kablan can be a great tool to ease the financial burden of buying property before it’s completed, especially in a rising real estate market. However, it’s crucial to understand the risks involved, particularly with fluctuating interest rates and the potential for increased costs due to inflation. By carefully reviewing the terms and maintaining a solid financial position, this loan can be a smart option for many buyers in Israel.