Rates Were Cut Twice This Year. Your Payment Might Not Have Moved.
By Meir Rubenstein |
The Bank of Israel cut rates twice this year, to 3.75% in May and 3.50% in July. A lot of buyers assume that means a cheaper mortgage. Not automatically. We've had clients ask why their monthly payment barely budged despite two rate cuts, and the answer is always the same: it depends how your loan is split, not what the headline rate says.
That answer opens up the three questions almost every buyer here ends up facing, usually in this order: how the loan is built, how much the bank will actually lend you, and how much you can realistically carry. Here's how we walk clients through all three.
How the loan is built
Every mortgage here is really three loans in one. Kvua is fixed: your rate is locked at signing, around 4.2% these days, and it never moves again. Tzamud madad is CPI-linked: the rate looks lower, around 4.1%, but your balance grows with inflation even if you never miss a payment. Prime is the only one that actually moves with the Bank of Israel, currently around 5%. It's the piece that just got cheaper. It's also the piece that got expensive during the hikes a few years back.
The bank caps how much you can put in prime at two-thirds of the loan. Most advisors will tell you to keep more than that in fixed, especially with no guarantee the cuts keep coming. A buyer who went heavy on prime in 2022 felt every hike that followed. This year, the same buyer is finally catching a break.
And that's the whole mystery of the payment that barely moved: only the slice of your mortgage sitting in prime got cheaper. The split you chose at signing decided, years in advance, how much of any rate cut you'd ever see.
How much the bank will lend you
We're not mortgage brokers, we're real estate agents. But we hear these questions from almost every buyer before they've even sat down with the bank, so here's the short version on eligibility. Buying your only apartment: up to 75% financing. Still own your current place and upgrading: up to 70%, if you sell within 18 months. Buying a second property as an investor: 50%. Foreign residents who aren't citizens: also around 50%.
Olim don't get a higher LTV, still 75%, but you can layer on the Zakaut loan: 100,000 to 300,000 NIS at a capped rate under 3%, no penalty for early payoff, usable within 15 years of your Teudat Oleh. It's a common mix-up we see: people assume oleh status buys them more borrowing power on the apartment itself, when really it buys them a separate, cheaper loan on top.
Buying through a company is a different game entirely. Banks stop looking at your salary and start looking at the property's rental income, and they'll usually want 40-50% down. You lose the residential tax brackets too, it's a flat 6% purchase tax with no exemption tiers, but a registered business can claim back the 18% VAT that individual buyers can't. Comes up more than you'd think with clients buying for investment purposes.
How much you can actually carry
Whatever LTV you qualify for on paper, income sets the real ceiling. Banks generally cap your mortgage payment at 33-40% of net monthly income, tighter if you're leaning heavy on prime since that payment can rise. A household clearing 15,000 shekels net a month is realistically capped around 5,000-6,000 shekels in payments, no matter what the LTV tables say.
That's why the single most useful thing you can do before touring apartments is get an ishur ikroni, a pre-approval letter from the bank. It gives you the real number instead of a guess, and it tells sellers you're a buyer worth taking seriously.
Before you sign
Put it together and the order of operations is simple. Get the ishur ikroni first, so you're shopping with a real budget. Then, when the bank puts an offer in front of you, remember that the split between kvua, tzamud madad, and prime will shape your monthly payment for years, far more than whatever the headline rate is doing that week. It's worth five minutes with a mortgage advisor before you sign anything. Happy to point you to a couple we trust.
