Halva’at Kablan: The Newest Mortgage Craze

Over 20% of mortgages in Israel in 2024 was done through a Halva’at Kablan.

But what is a Halva’at Kablan and how can it help me?

For many homebuyers in Israel, purchasing a new apartment on paper—before construction is completed—is an attractive option. It allows buyers to lock in today’s prices and benefit from appreciation by the time they move in. However, it also presents a major financial challenge: buyers must secure a large initial down payment, and continue to pay rent on their current place of living, all while making mortgage payments on a property that isn’t yet built. This is where Halva’at Kablan, or the Builder’s Loan, comes in.

This financing model addresses both issues – providing the builder with funds to complete the project while easing the financial burden on the buyer during construction.

But what is Halva’at Kablan? Unlike a conventional mortgage, where the bank transfers a lump sum to the seller to purchase a completed property, a Builder’s Loan is structured to fund a home under construction. It involves three key players who sign a 3-way contract:

• The Buyer who gets pre-approved by a bank and makes an initial down payment to the developer.
• The Bank who issues funds in stages directly to the builder, based on construction milestones.
• The Builder (Kablan) who oversees construction and covers the interest payments on the loan until the project is completed (or a specific date).

While Halva’at Kablan offers lower upfront costs and financing flexibility, it also comes with risks that buyers must consider.

One concern is mortgage eligibility upon project completion. Pre-approval for a Builder’s Loan does not guarantee final mortgage approval, as banks reassess a buyer’s financial situation before converting the builders loan to a mortgage. To avoid issues, buyers should maintain a stable income, manage their debt wisely, and refrain from taking on new financial obligations that could impact their approval.

Another key risk is the potential for increased costs. If interest rates rise between the initial loan approval and final mortgage conversion, monthly payments could be significantly higher. Additionally, many builder contracts are linked to the Madad (Israeli Consumer Price Index), meaning the final purchase price may increase with inflation.

Since each Halva’at Kablan agreement differs, buyers must carefully review the terms. It is essential to clarify who covers interest payments during construction, if the price is linked to the Madad and how the bank handles mortgage conversion. Given the complexities involved, consulting a professional prior to signing is highly recommended to ensure you secure the best possible terms.