Why Can a Low Payment Be Our Biggest Enemy?

Introduction

Listen, there's nothing more tempting than the idea of a low monthly mortgage payment. It's as if the bank is telling you: "Treat yourselves, no problem, we'll manage". And then you sign, start paying, and feel like winners. But as in every good story, there's a surprising twist here. Yes, that same low payment can become your biggest enemy. How? Let's dive in and understand the story.

Linked interest - the honey trap

True, a low monthly mortgage payment is achieved by combining CPI-linked tracks. At first it looks like a deal from the movies: the interest is low, the payments look friendly, and everything flows. But that's exactly where the problem begins. This linked interest behaves like a friend who does you a big favor and then asks you to pay the bill after the most expensive meal in town.

The principal - the secret under the rug

In these linked tracks, the principal rises with the index. What does that mean? Every month your payment goes up, and you find yourselves with more debt than when you started. Sometimes you find yourselves paying the bank tens of thousands of shekels, for a good number of years, and your mortgage not only didn't go down - it actually went up.

The total price - the expensive pleasure

And here's the most painful point: even if at first the payment looks low, in the end the total cost of the mortgage will be higher. This means the total amount of money you'll pay the bank will make you feel as if you bought two apartments and not one.

A numerical example

Let's look at it in numbers:

• Mortgage: 1,000,000 ₪
• Period: 30 years
• CPI-linked track: 3% interest, average inflation of 2% a year

The initial monthly payment will be relatively low, but over the years it will rise significantly. The last payment can be almost 2 times the first payment! And the total cost? It can reach amounts that will make you wonder whether it was really worth it.

The additional risks

1. Unpredictable cash flow

When the monthly payment keeps rising, it's hard to plan the family budget. What was a comfortable amount 5 years ago can become a heavy burden when the index rises.

2. Difficulty selling the property

If you want to sell the apartment, you'll discover that the mortgage balance is higher than you thought. This can hurt your ability to move to a bigger apartment or invest in another property.

3. Psychological pressure

Seeing the debt keep going up instead of down creates an unpleasant feeling and constant pressure. It affects your quality of life and your ability to enjoy your new home.

What's the solution?

1. A balanced mix

Instead of going for a linked track only, it's worth building a mix that also includes fixed tracks. That way you keep stability in part of the monthly payment.

2. A shorter period

If possible, try to take the mortgage for a shorter period. The monthly payment will be higher, but the total cost will be significantly lower.

3. Early repayment

Every time you have a bit of extra money, consider depositing it into the mortgage. It will reduce the principal and save you a lot of money in the long run.

4. Periodic review

Review your mortgage at least once a year. Make sure you're still happy with the mix and consider refinancing if market conditions have changed.

Summary - the enemy within

So true, it's tempting to go for a low monthly payment, especially when you're offered CPI-linked tracks with low interest. But as in every good story, you need to read the fine print and understand the traps along the way. This low payment can become your biggest enemy, and instead of celebrating your new apartment, you'll find yourselves struggling with rising payments and a feeling of heaviness.