Below is a list of the main mortgage options in Israel. Not all of the various loan tracks listed below are available to every client, as pre-approval is subject to lending regulations and circumstances.
Shekel - Prime Rate
Prime is another name for the variable lending rate for shekels, which is set by the Bank of Israel. The Prime rate is typically reevaluated on the last Monday of each calendar month. Banks quote the variable rate to borrowers based off the prime rate, e.g. 'Prime minus 0.5%'. At time of writing, the Prime rate is 1.6%, so 'Prime minus 0.5%' equals 1.1%.
There are no pre-payment penalties for making early repayments.
Bank of Israel lending restrictions tend to limit the prime rate track to 33% of the total loan amount.
Shekel - Semi Fixed Rate
In this loan track, the interest rate varies every 5 or 10 years. The interest rate is composed of a base rate (called the Ogen) which is calculated according to the bond market conditions, plus a profit margin for the bank. For example, at time of writing, a 5 year semi fixed loan is available at Ogen (1.85%) plus 1.35%, which equals 3.2%. In 5 years, the bank will fix the interest rate for the subsequent 5 years, based on the Ogen rate of the day.
This loan can be paid off at the end of each fixing period without penalty, and is available with or without index linkage (see below).
Shekel - Fully Fixed Rate
In this track, the interest rate doesn't vary at all. This loan option is available with or without index linkage (see below), and there is a possibility that this track comes with significant pre-payment penalties.
What is a 'madad' or 'Index linked' mortgage?
A madad loan means that the capital loan amount is linked to the Israeli cost of the living index (CPI). The advantage of a madad loan is that the interest rates are lower than an unlinked loan, which in turn lowers the initial monthly repayments. However, the index linkage adds significantly to the long term cost of the loan.
Foreign Currency Loans
All banks in Israel can lend in shekels, US dollars, or Euros. Some banks can also lend in British Pounds, Swiss Francs, Canadian Dollars, and other currencies. Foreign currency loans are usually only available at variable rates of interest, based on the LIBOR rate.
Generally speaking, foreign currency loans are disbursed to the seller in shekels, and monthly repayments must be made in shekels.