Israeli Mortgage Mix Guide

1. Regulatory Basics

The rules you must play by before you even choose tracks

Israel · Bank of Israel rules

At least 1/3 fixed rate Max ~30–40% of net income as monthly payment

Before choosing the mortgage mix (תמהיל), there are two key constraints:

At least one third of the mortgage must be on a fixed rate track.
That fixed rate can be linked to the index (מדד) or not linked, or a combination, as long as the total fixed portion is at least ⅓.
The monthly payment may not exceed about 30–40% of your disposable income.
The bank checks your household income and will not approve a mortgage whose monthly repayment exceeds that range.

Why this matters

These constraints limit how “aggressive” or “conservative” you can be. Inside this framework, you can mix: fixed, prime, and variable rates, linked or unlinked, and different terms (years).

2. Main Mortgage Tracks

What each track is, with pros, cons, and who it fits

Fixed rate Prime (P) Variable rate

2.1 Fixed Rate, Not Linked to Index (קל"צ)

Very stable High early repayment penalty risk

Interest is fixed for the entire period. No linkage to the consumer price index (מדד). Your nominal monthly payment is almost fully stable.

Advantages

Maximum stability: no surprises from interest or index changes.
Full protection against inflation.
Psychological comfort – you know exactly what you pay.

Disadvantages

Usually the most expensive interest rate relative to other tracks.
High risk of early repayment penalty (קנס פירעון מוקדם) if interest rates in the market decrease and you want to refinance or prepay.
Less flexibility if you plan to sell/repay earlier than planned.

Who is it suitable for?

People who value maximum stability over potential savings.
Households that don’t expect to repay a big chunk within ~5–7 years.
Those who are anxious about fluctuating monthly payments.

2.2 Fixed Rate, Linked to Index (ק"צ)

Index risk Penalty risk on early repayment

Interest remains fixed, but the principal is linked to the CPI. Over time, inflation may increase the debt and payments.

Advantages

Interest rate is usually lower than unlinked fixed (קל"צ).
Initial monthly repayment is lower.

Disadvantages

Exposure to the index: the debt can grow in the first years if inflation is positive.
Early repayment penalties are possible if market rates drop (similar logic to unlinked fixed).
Less intuitive – the nominal balance can look scary after a few years.

Who is it suitable for?

Those willing to take inflation risk in exchange for lower interest.
Borrowers planning partial repayment in the medium term, but still want some fixed element.

2.3 Prime Rate (P ± X)

High flexibility High sensitivity to interest rate

Prime = Bank of Israel rate + 1.5%. The track is not index-linked, but the interest changes whenever the prime rate changes.

Advantages

Typically the cheapest track over time (when rates are not extremely high).
No early repayment penalties – you can repay at any time.
Excellent for planned prepayments and refinancing strategies.

Disadvantages

Highly volatile: if the Bank of Israel raises rates, your monthly payments can jump substantially.
Not ideal for households with very tight monthly budgets.

Who is it suitable for?

Borrowers who expect incoming funds for early repayment.
People with capacity to absorb increased payments if rates rise.
Those who want a flexible “exit route” in the mortgage.

2.4 Variable Rate – Changes Every X Years (צמוד/לא צמוד)

Medium stability Good for planned refinancing

Interest is fixed within each period (e.g., 5 or 7 years) and then updated at the “change station” based on market interest rates.

Advantages

Initial interest is often lower than fully fixed tracks.
At each change station, you can usually repay or refinance with little/no penalty.
Good for planned refinancing in 3–7 years.

Disadvantages

Future interest is unknown – payments might jump at the change date.
If you repay between change stations, there may be some (usually smaller) early repayment penalty.

Who is it suitable for?

Borrowers expecting money within 3–7 years to reduce or repay the loan.
Those who want a compromise between stability and flexibility.

3. Side-by-Side Comparison

How the tracks compare on risk, cost, and flexibility

Overview · At a glance

Track	Stability	Interest Cost	Index Exposure	Interest Rate Exposure	Early Repayment Penalty	Flexibility
Fixed, Not Linked (קל"צ)	Very high	High	None	None	High	Low
Fixed, Linked (ק"צ)	High	Medium	High	None	High	Low
Prime (P ± X)	Low	Low	None	High	None	High
Variable every X years	Medium	Low–Medium	Depends (linked/unlinked)	Medium	Low–Medium	Medium–High

Interpretation: Fixed tracks buy you stability but reduce flexibility and can lead to penalties upon early repayment, especially if rates later fall. Prime and variable tracks are more flexible but expose you to higher payment volatility.

4. Early Repayment & Refinancing

When penalties appear and how to minimize them

Penalty risk Optimization opportunity

4.1 When does an early repayment penalty happen?

The bank compares the interest you are paying on the track to the interest it could earn by lending that money now to a new customer.

If your rate is higher than current market rates → the bank “loses” by letting you repay early → it may charge a penalty (קנס היוון).
If your rate is lower than current rates → usually no penalty.

4.2 Which tracks have penalties?

Fixed tracks (linked / unlinked): main source of early repayment penalties.
Variable tracks: between change stations there can be a small penalty, but exactly at the station it’s often reduced or eliminated.
Prime tracks: typically no penalties at all.

4.3 Refinancing (מחזור) – When is it worth it?

Refinancing is worth checking when:

Market interest rates are significantly lower than your current rates.
You wish to shorten the term (reducing overall interest costs).
You want to reduce the monthly payment (e.g., after income changes).

But you must check:

The size of early repayment penalties on fixed tracks.
New bank fees and overall benefit over the remaining years.

How to reduce penalty risk from day one

Avoid putting too large a portion in long-term fixed tracks.
Use prime and variable tracks as “flexible legs” for future repayment.
Consider when you expect to sell the apartment or receive large sums.

5. Typical Mix Strategies

Examples of how people balance stability and flexibility

Examples · Not recommendations

Below are example mixes people often use. These are not directives – just illustrations of different attitudes to risk, stability, and flexibility.

5.1 “Maximum Stability” Mix

Emphasis on predictable payments and minimal surprises, at the cost of potential penalties and slightly higher payments.

~35% fixed, not linked (קל"צ)
~35% fixed, linked (ק"צ)
~30% prime

Fit: Families who value peace of mind over optimization.

5.2 “Flexible for Future Changes” Mix

Designed for those expecting to repay or refinance in the medium term.

~33% fixed, linked (ק"צ)
~33% variable every 5–7 years
~34% prime

Fit: People expecting funds within 3–10 years or planning a future home move.

5.3 “Low Initial Monthly Payment” Mix

Focus on low payments at the beginning, accepting higher risk later (index and rate jumps).

Larger share of variable and index-linked tracks
Smaller share of unlinked fixed tracks

Fit: Borrowers with tight short-term cash flow who expect much higher income later.

6. Deep-Dive: Strategic Considerations

How to think like an optimizer – you still make the call

Optimization Trade-offs

Core idea

You are always trading off stability and certainty versus flexibility and potential savings. No mix is “perfect” – only a best fit for your situation and risk tolerance.

6.1 Why not put everything into fixed tracks?

In practice, many people sell the property or refinance within 7–12 years, long before a 25–30 year mortgage ends.
Heavy reliance on fixed tracks → high penalty risk when you sell or refinance.
There’s also a real possibility that future terms will be better, and inflexible fixed tracks will make it harder to take advantage of them.

6.2 Planning for known future cash inflows

If you already know about future money (קרן השתלמות, inheritance, business exit, etc.) within ~5–10 years, you can design the mortgage around that:

Allocate more to prime and variable tracks (flexible for repayment).
Reduce the proportion of long-term fixed tracks that could incur big penalties.
Plan specific repayment points (e.g. at variable change stations).

6.3 Expectations about interest rates

If you believe rates will fall: prefer more flexible tracks (prime, variable) so you can refinance under better conditions.
If you believe rates will rise: locking in more fixed tracks now can protect you, at the cost of flexibility.

6.4 Index (מדד) risk management

Index-linked tracks look attractive with lower interest, but over 20–30 years the index can significantly increase the total cost.

A common rule of thumb: avoid pushing index-linked tracks much above ~40% of the mortgage, unless you fully understand and accept the risk.

6.5 “Side savings” strategy

One intelligent approach mentioned in your transcript:

In addition to the mortgage payment, you save a fixed amount monthly into a separate account.
Every 2–3 years you use that money for a partial prepayment on the flexible tracks (prime / variable).
This method can shorten the effective life of your mortgage and significantly reduce total interest.

7. Summary & Personal Decision Checklist

You decide – this list helps you choose consciously

Self-assessment

There is no one “correct” mix, but there is a mix that matches your situation and personality better than others. Use these questions to guide yourself:

How important is maximum stability in my monthly payment?
Do I expect to sell the property within 5–10 years?
Do I expect significant cash inflows within 3–10 years?
Can I tolerate a possible jump in monthly payment if interest rates rise?
How do I feel psychologically about index-linked debt?

If you crave stability and don’t expect early repayment:
Higher weight to fixed tracks, especially unlinked (קל"צ).
If you expect to repay or refinance:
Higher weight to prime and variable, reduced fixed proportion.
If you focus on low monthly payment now:
More variable and index-linked – with clear awareness of future risk.
If you fear inflation:
Prefer non-linked tracks, or at least cap linked tracks to a moderate share.

Final note

This guide deliberately doesn’t “decide” for you. It gives you structured information + strategic insights, so you and your mortgage advisor can build a mix that fits your life and risk preferences.