Mortgages

Fixed rate, Shekel-denominated, CPI-linked – This is a NIS-denominated loan that can be taken for 5–30 years. Typically, the interest rate the bank will offer will increase along with the loan term. While the interest rate remains fixed for the full term of the loan, the bank adjusts the remaining outstanding amount you owe based on the official levels of inflation reported by the Bank of Israel. I know, you’re already lost... Ok, here's an example: Let's say you take a NIS 100,000 loan for a period of 20 years at a fixed rate of 5%. Your fixed monthly payment of principal and interest will be NIS 659.96…as long as inflation is 0%. After the first year, you would have paid back almost NIS 3,000. Now, if inflation was 5% during that first year, your remaining balance would be readjusted to NIS 101,863 and your monthly payment would be readjusted to be NIS 692.95. Heavy prepayment penalties exist for early repayment or refinancing of this loan. However, these prepayment penalties only apply if the market interest rates at the time of early repayment or refinancing are higher than the interest rate on your mortgage. (In Hebrew, this loan type is referred to as Tzamud L'madad, Reebit Kavua.)

Floating rate, Shekel-denominated, Dollar, Sterling, Yen, Swiss Franc-linked – This is another NIS-denominated loan that can also be taken for 5-30 years. The interest rate is based on the LIBOR index and the addition of some fixed margin. The outstanding principal balance of the loan is regularly adjusted as the NIS/$ (or NIS/Sterling) exchange rate fluctuates. No prepayment penalties exist on this loan. (In Hebrew, this loan type is referred to as Tzamud L'dollar (Sterling), Reebit Mishtana.)

Floating rate, Shekel-denominated, non-linked – This loan is NIS-denominated and can also be taken for 5-30 years. The interest rate is determined by taking the Bank of Israel Prime Rate and subtracting some fixed margin. The principal balance of this loan is never adjusted according to inflation or some foreign exchange rate. No prepayment penalties exist on this loan. (In Hebrew, this loan type is referred to as Lo Tzamud, Reebit Mishtana.)

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