How Israeli Mortgages Work: The Fixed, Prime, and CPI-Linked Tracks Explained

An Israeli mortgage is a mix of tracks, not one rate: fixed-unlinked (6.65%), prime/variable (5% — Bank of Israel plus 1.5 pp), and CPI-linked (3.25%, balance rises with inflation). Rules: at least 1/3 fixed, prime up to 2/3, term cap 30 years, payment cap 50% of net income.

The one thing to understand first: a mortgage is a mix, not a rate

Buyers from the US, UK, or Europe usually arrive expecting a single number — “what is the mortgage rate?” In Israel there is no single number, because a mortgage (משכנתא) is assembled from separate tracks (מסלולים), each with its own rate and its own behaviour over time. You decide how to divide the loan across them, within limits the Bank of Israel sets. That is why our headline “average new-mortgage rate” of 6.69% (February 2026) is a blend: it averages across the fixed, prime, and CPI-linked money that real borrowers combined. Understanding the three tracks below is what lets you read a bank’s offer — and see why two people can both have “a mortgage” and face completely different risk.

Track 1 — Fixed, unlinked (קבועה לא צמודה)

This is the only track that is genuinely predictable. The interest rate is fixed for the whole term and the principal is not linked to inflation, so the monthly payment is the same in year one and year twenty-five. On our Bank of Israel data the fixed-unlinked rate on new mortgages is 6.65% (February 2026). That certainty is why it is usually the most expensive track on the sticker — you pay for the insurance against rates and inflation. A borrower who wants to know their exact payment for the life of the loan anchors it here. It is also, by design, the track the Bank of Israel leans on for its stability rule (below).

Track 2 — Prime, the variable track (פריים)

The prime track is priced directly off monetary policy. Israel’s prime rate is defined as the Bank of Israel policy rate plus a fixed 1.5-percentage-point spread; with the policy rate at 3.5% (July 2026), prime is 5%. The principal is not inflation-linked, but the rate is not fixed: the Bank of Israel’s Monetary Committee sets the policy rate eight times a year, and your prime-track payment moves with it — rising when the Bank hikes, falling when it cuts. It is typically cheaper than fixed-unlinked when you take it, in exchange for accepting that the payment can change several times a year. How Bank of Israel decisions flow through to this track is the single biggest reason a mortgage payment moves after you sign.

Track 3 — CPI-linked (צמוד מדד)

The CPI-linked track shows the lowest headline rate — 3.25% on our data — and that is exactly what makes it easy to misread. Inflation is charged separately: the outstanding balance is periodically re-linked to the Consumer Price Index (the מדד, madad), so in an inflationary year the principal you owe grows and the payment climbs even though the quoted rate did not move. The honest way to read it is rate plus inflation: a 3.25% linked track in a 3%-inflation year behaves more like a mid-6% loan. It can win over the long run if inflation stays low, but it carries a risk the sticker rate hides. (The same index, מדד, is what links a new-build developer’s price between contract and delivery — see the off-plan section on lawyers, fees and costs.)

The tracks side by side

Rate methodology: fixed-unlinked and CPI-linked figures are the Bank of Israel average interest on new housing loans by indexation track (SDMX banking-interest statistics, February 2026); prime is the Bank of Israel policy rate (3.5%, July 2026) plus the banks’ standard 1.5 pp spread. Rates are indicative, change as the market and policy move, and a borrower’s actual quote depends on profile, loan-to-value, and track mix.

The mix rules: what the Bank of Israel requires

You do not have a free hand to load the whole loan onto the cheapest track. The Bank of Israel’s macroprudential rules (Proper Conduct of Banking Business Directive 329 and the related directives) set the frame:

• At least 1/3 fixed. A minimum one third of the loan must sit in a fixed-rate track, so no borrower is fully exposed to rate moves.
• Prime up to 2/3. Since a December 2020 easing, the prime (variable) portion may run up to two thirds of the loan; before that it was capped at one third.
• Term up to 30 years. The maximum mortgage term is 30 years.
• Payment ≤ 50% of net income. A bank may not approve a loan whose monthly payment exceeds 50% of your net monthly income (many banks prefer to stay below one third).

These caps apply to every borrower, resident and non-resident alike — on top of the separate loan-to-value limit that decides how much you can borrow in the first place (up to 75% for a resident’s only home, 50% for a non-resident or investment property). We cover the loan-to-value cap, the documents, and which banks lend to foreigners on mortgages for non-residents.

Worked example: a ₪2,000,000 loan over 25 years

Here is what the tracks mean in shekels, computed at build time from the Bank of Israel rates above. Take a ₪2,000,000 (≈ $540,541) loan over 25 years — the mortgage on a ₪4M apartment at the 50% non-resident cap. On a single track, the standard monthly payment would be:

Indicative only — not an offer, quote, or advice. Each figure is a standard amortization at a single rate. The CPI-linked payment is shown before its inflation adjustment, so its true cost is higher than the number above; the prime payment will change every time the Bank of Israel moves the policy rate. A real mortgage blends the tracks, so your actual payment will differ. Rates are the Bank of Israel figures for February 2026; FX at an indicative ₪3.70/$1. Confirm a live quote with a licensed Israeli bank or an Israeli mortgage broker.

Why your payment moves after you sign

Two of the three tracks are not fixed, so a mortgage payment is rarely static. The prime portion re-prices whenever the Bank of Israel changes the policy rate — currently 3.5% (July 2026) — which it reviews eight times a year, so a run of hikes raises that slice of your payment and a run of cuts lowers it. The CPI-linked portion re-prices with inflation: a rise in the consumer price index lifts the balance you owe. Only the fixed-unlinked slice is immune to both. That is the real trade-off behind the mix: more prime and CPI-linked money means a lower payment today and more exposure to what rates and inflation do next. Where rates sit in the wider cycle is part of the timing question we walk through on is now a good time to buy in Tel Aviv.

Frequently asked questions

Where this fits in the buying process

Choosing a track mix is the financing half of a Tel Aviv purchase; the eligibility half — how much you can borrow, which banks lend to foreigners, and the paperwork — is on mortgages for non-residents. For where a mortgage plugs into the deal timeline see the buying process, step by step, and for the other costs that stack on top, lawyers, fees and costs. For context, our current median tracked Tel Aviv-Yafo asking price is ₪4,850,000 ($1,310,811), n = 1,037, July 2026 (methodology; full data on the market hub).