How a mortgage mix works

A mortgage in Israel is rarely a single loan on a single set of terms. It is usually split into several tracks, and each track behaves differently over the years. The combination is called the mix, and it is one of the most important decisions in the deal: it shapes the monthly repayment, the total cost and how exposed you are to changes in interest rates and in the index.

What a track is

A track is a part of the loan with its own rules: how the rate is set, whether the balance is linked to the index, and when the rate can change, if at all. These are the four you will meet most often:

• Prime: the rate moves with the prime rate. When it goes up, your repayment goes up; when it comes down, so does the repayment.
• Fixed, unlinked: the rate and the repayment are known in advance for the whole term. Certainty is the point, and it is worth checking what it costs compared with the other tracks.
• Fixed, CPI-linked: the rate is fixed, but the balance is updated in line with the consumer price index. When the index rises, the balance and the repayment rise with it.
• Variable every 5 years: the rate is reset at fixed points along the way. The rate changes at the reset; on an index-linked version, the balance and repayment can also change between resets.

Why tracks are combined

Every track gives something and takes something. A fixed track gives certainty, a variable one gives flexibility, and a linked one exposes the loan to inflation. A mix spreads the risk: when one condition in the market changes, not all of the loan reacts to it in the same way at the same time.

For illustration

Say a loan of ₪1,200,000 is split into three equal parts: prime, fixed unlinked and unlinked variable every five years. If the prime rate rises, only the first third is affected straight away. The fixed part stays as it was, and the variable part is only updated at its next reset. The split and the amount are for illustration only and are not a recommended mix.

What decides which mix suits you

• How steady your income is: how far the monthly repayment can move before it puts pressure on the household budget.
• Your plans for the next few years: selling, moving or repaying early change the picture, because on some tracks an early repayment may carry a fee.
• How you feel about uncertainty: some people prefer to pay for certainty, others accept ups and downs in return for flexibility.
• The rules: there are regulatory rules on how a mix may be built, so not every split is possible.

How to check a mix

Don't look only at the first month's repayment. Check how much you will pay in total over the term, how the repayment behaves if rates or the index rise, and what happens if you want to repay part of the loan early. Comparing a few mixes this way shows what each one gives and what it takes. The services page shows where this check fits into the process, and if you already have a mortgage, see when it makes sense to check a refinance.

Three questions to ask about the mix

• Which part of the repayment can change, what causes that change, and when can it happen?
• Are the offers based on the same loan amount and term, and how does their projected total cost compare?
• If you sell or repay early, which tracks could limit your flexibility?

For the official explanation of comparing offers, see the Bank of Israel mortgage guide.

Common questions

General information only, not personal advice. Every figure here is for illustration.