When you hear the word ‘commercial loan’ you may immediately think it refers to a loan for a warehouse or a building. However, in Israel a commercial loan also exists for a regular apartment. It is somewhat different from a regular residential loan but not significantly so. How does it work, and who is it for?

The bank is willing to give a commercial loan to anyone who falls into the category of a real estate investor, even for a regular apartment.  Who may be considered a real estate investor? The answer is anyone who owns multiple properties globally. This additional property will be part of their portfolio. The second way to qualify is if the apartment is being purchased under your company name, which can include a regular American LLC.

The reason one may prefer a commercial loan over a residential loan is that both foreigners and Israelis can receive a 75% loan. 
With a residential loan, you may only be eligible for 50%. Additionally, with a commercial loan you are not required to structure the loan with a fixed rate at all, which mean there will not be any early payment penalties.  Conversely, with a residential loan you will legally need to have at least one-third of the mortgage at a fixed rate.

The primary disadvantage of a commercial loan is that interest rates will be higher than those of a residential loan.  However since one may not be eligible for more than 50% with a residential loan, and they will need 75% to close on the property.  In such cases, a commercial loan is a game changer for the buyer.