Interest rates have risen sharply in recent months, and borrowers are offered a wide range of products. Here too, regulations are constantly evolving, and there are distinctions to be made between products.

After the crisis of 2008 and the sudden reduction in key interest rates, most borrowers committed to long-term interest rate swaps.

In 2010, the Bank of Israel, anticipating a rise in interest rates, limited exposure to products that were too volatile, to one-third of the loan for products with a fixed maturity of less than one year, and to two-thirds of the loan for products with a fixed maturity of more than one year and up to 5 years.

Borrowers were then obliged to fix their loans at one-third of the total amount.

This increase in key rates did not take place, and for more than thirteen years individuals have had to pay the price of regulation.

At the end of 2021, the Bank of Israel eased the regulation on Prime, based on key rates. This had the immediate effect of seeing borrowers rush to Prime.

At the same time, in the spring of 2022, key rates began to rise aggressively to curb inflation. As a result, borrowers have seen their monthly repayments rise significantly in recent months.

And those who had taken out inflation-indexed loans saw their outstanding credit increase in recent months – in contrast to previous years, when inflation had been very low, or even negative.

So what should you do? The approach to home loans in Israel needs to be open-ended and, above all, unless you can find a non-indexed fixed rate of 2% over 20 years (which has never happened), it needs to be defined according to your needs at the time – while limiting the risks.

Finally, you need to keep an eye on your monthly repayments and market trends.

As mentioned above, there are different types of product and different ways of modulating your credit.

First of all, the maximum borrowing period can be up to 30 years, with a maximum age of 80 (i.e. the loan can be completed at the age of 80).

You can borrow at a fixed rate, with two options:

– non-indexed fixed rates

– or a fixed rate indexed to the cost of living.

There is a very significant difference between these two types of rate.

You can borrow at fluctuating rates, indexed to the Prime (or to the Bank of Israel’s key interest rate index). This product is highly volatile and can change at any time; the capital is not indexed to the cost of living.

You can borrow on products with changing rates, over defined periods, two and a half years, five years; the rate is fixed and the capital can be indexed or non-indexed. The periods may vary from bank to bank.

Finally, there are loans indexed to the euro or the dollar, where the rates change every 3 months and the capital is indexed to the dollar or euro currency, depending on what you chose at the outset.

Each type of loan can offer advantages or advantages depending on the borrower’s profile.

There is no such thing as a better loan; there are riskier loans, cheaper loans and more expensive loans, depending on the borrower’s profile and objectives.

As you will have realised, there are many determining factors in the decision to take out a loan, and it’s best to be aware of them so that you can be better prepared for changes in the market.

At CAP8, we will give you the benefit of our 16 years of experience in the field of mortgages and support for your property purchase or investment in Israel, so that you can approach this important stage with complete peace of mind.