Mortgage Tracks: Understanding the Building Blocks of Your Loan
Mortgage tracks determine how your interest rate, the index, and monthly repayment may change over the life of the loan. On this page, we review the main tracks, the differences between fixed and variable interest and between linked and non-linked tracks, and how to choose a combination that balances stability, flexibility, and cost.
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A Mortgage is a large and complex loan, so in most cases it is not taken out through a single track but divided among several different tracks. In this chapter, we will understand the differences between the main tracks and how to create a balance between stability and savings.
Understanding the mechanism: What is a Mortgage track?
When you take out a Mortgage, you do not have to take the entire amount at the same Interest rate and under the same terms. In practice, it is customary to divide the loan amount into several parts, with each part called a track.
For example, if you need a Mortgage of one and a half million shekels, you can divide it as follows:
- Part of the amount in a fixed-interest track
- Part in a Prime rate track
- Part in a variable-interest track
Each part will have different terms—different Interest rates, different risk levels, and sometimes different repayment periods.
The combination of tracks is called a Mortgage mix, which we will discuss in the next section.
How does it work? The two main characteristics of Mortgage tracks
Before discussing the Mortgage tracks themselves, it is important to understand that every track consists of two main characteristics:
1. Fixed interest versus variable interest
Fixed interest versus variable interest
| Characteristic | Fixed interest | Variable interest |
|---|---|---|
| How is it determined? | Set on the signing date and remains the same throughout the life of the loan. | May change over the years, for example, every 5 years or according to the Bank of Israel interest rate. |
| Main advantage | Provides certainty and peace of mind. | Usually starts at a lower rate. |
| Main risk | Will usually be more expensive at the outset. | The monthly repayment may increase in the future. |
- In a Prime rate track, the Interest rate changes according to the Bank of Israel interest rate.
- In other tracks, the Interest rate is updated every few years according to market conditions.
- In such tracks, the monthly payment may rise or fall over time.
2. Linkage to the Consumer Price Index (CPI)
There are tracks in which the loan is linked to the Consumer Price Index (CPI). The Consumer Price Index (CPI) is an index published by the Central Bureau of Statistics that measures changes in the prices of a basket of goods and services purchased by households in Israel—in other words, changes in the cost of living.
- Maslul Tzamud Madad (מסלול צמוד מדד)
- The loan balance is updated according to changes in the index. If the index rises, the Mortgage Principal may also rise, and therefore the monthly repayment may increase as well.
- Maslul Lo Tzamud (מסלול לא צמוד)
- Your debt is not affected by changes in the cost of living (Inflation).
Comparing tracks: An overview of KALATZ, Prime, and variable tracks
Below is an overview of the most common options on the market:
Ribit Kvu'a Lo Tzmuda (KALATZ) (ריבית קבועה לא צמודה (קל"צ))
This is one of the most stable and straightforward tracks. The Interest rate is set on the day the Mortgage is taken out and remains fixed throughout the term. The Principal is also not linked to the index.
Advantages
- Complete certainty
- Easy to plan the monthly budget
- No exposure to rising index levels or changes in Interest rates in the economy
Disadvantages
- Higher initial Interest rate
- Early repayment fee (penalty) if you wish to pay off the loan early
Who is it suitable for: Those who prefer stability, certainty, and peace of mind, even at the cost of a higher price.
Fixed interest linked to the index
In this track, the Interest rate itself is fixed, but the Principal is linked to the Consumer Price Index (CPI).
Advantages
- The initial Interest rate is lower
- There is some certainty regarding the Interest rate
Disadvantages
- The Principal may increase if the index rises
- The monthly repayment may increase over the years, resulting in a higher total cost than expected
Who is it suitable for: Those who understand the risk of index linkage and are willing to take it in exchange for a lower initial Interest rate.
Variable interest not linked to the index
The interest rate is updated at set intervals (for example, every 5 years). At each update point, the bank assesses interest rates in the economy and updates the rate for the track. Therefore, the interest rate may rise or fall over the life of the mortgage.
Advantages
- Relatively low initial interest rate
- No exposure to index increases
- Flexibility for early repayment
Disadvantages
- Interest rate may change at update points
- It is difficult to estimate future repayments due to rising interest rates in the economy
Who is it suitable for: Those seeking a lower initial interest rate than fixed-rate tracks and wishing to avoid indexation, but willing to accept some uncertainty regarding future interest rates.
Variable interest indexed to the CPI
Neither the interest rate nor the principal is fixed. The mortgage principal is linked to the Consumer Price Index (CPI), so if the index rises, the outstanding loan balance also increases. In addition, the interest rate itself is updated at predetermined intervals, usually every few years.
At each update point, the bank sets a new interest rate according to prevailing market rates at that time.
Due to the higher level of risk, the initial interest rate on this track is generally relatively low compared with more stable tracks. However, over time, changes in the index and interest rate may increase the monthly repayment and the total cost of the mortgage.
Advantages
- Low initial interest rate
- Flexibility to refinance at update points
Disadvantages
- Uncertainty regarding future repayment amounts and exposure to rising interest rates
- The principal is linked to the index and may therefore increase when inflation rises
Who is it suitable for: Borrowers who fully understand the risks and are willing to accept greater uncertainty in exchange for a lower initial interest rate, or borrowers who believe they will be able to refinance or repay part of the mortgage in the future.
Prime rate
A track in which the interest rate changes according to Bank of Israel decisions. The principal is not linked to the index.
Advantages
- Usually no early repayment penalties
- No indexation
- Very high flexibility
Disadvantages
- High exposure to interest rate changes in the economy
- The monthly repayment can increase significantly in a short period of time
Who is it suitable for: Those willing to accept some volatility and seeking greater flexibility.
Summary table: Main mortgage tracks
Main mortgage tracks
| Track name | Description | Advantages | Disadvantages |
|---|---|---|---|
| Ribit Kvu'a Lo Tzmuda (KALATZ) (ריבית קבועה לא צמודה (קל"צ)) | The mortgage interest rate is set in advance for the entire loan term | Certainty and easy budget planning | Relatively high interest rate and high early repayment fee |
| Fixed interest indexed to the CPI | Principal linked to the index; fixed interest rate | Relative certainty, assuming index changes are small | Monthly payments may rise over time |
| Variable interest not indexed to the CPI | Principal not linked to the index; variable interest rate | Relatively stable monthly payments and flexibility for early repayment | Risk of a significant rise in interest rates |
| Variable interest indexed to the CPI | Principal linked to the index; variable interest rate | Possibility of benefiting from falling interest rates and flexibility for early repayment | Uncertainty regarding payments and risk of a significant increase |
| Prime rate | Interest rate linked to the Bank of Israel's prime rate | Relatively low payments when the prime rate is low, flexibility, and no early repayment fee | Uncertainty regarding payments and risk of a significant increase |
Compare and choose wisely
The Bank of Israel publishes monthly data on interest rates and mortgage tracks offered by banks, enabling you to compare them simply and clearly. We have compiled the data for you on a dedicated comparison page.
Before choosing a mortgage, it is worthwhile to review the table we created for you, based on the Bank of Israel's "Kav Hashaveh" data, and compare the interest rates offered by different banks.
A smart choice: How do you choose a mortgage track?
When considering different mortgage tracks, do not focus only on today's interest rate. Ask yourselves:
Questions worth asking
- Is a stable, predictable payment important to us? (certainty versus risk)
- To what extent can we absorb an increase in the monthly repayment? (assessing our financial “safety cushion”)
- Would we prefer to pay a little more for peace of mind?
- Are changes in our income expected in the future? (a promotion at work, a Keren Hishtalmut (קרן השתלמות) reaching maturity)
- Is it important for us to retain the option of refinancing or repaying the debt without penalties?
The answers to these questions will help you understand which tracks suit your circumstances and which ones you should consider with caution.
Frequently asked questions
What is the difference between a track and a mortgage mix?
A mortgage mix is the overall combination of several tracks within your mortgage. A track is an individual component.
Why divide a mortgage into tracks at all?
To create balance. Each track has advantages and disadvantages. Diversifying your mortgage prevents a single economic change, such as a rise in the index, from disrupting your entire family budget.
Which is better—fixed or variable interest?
It depends on you. Ribit Kvu'a (ריבית קבועה) provides certainty but is usually more expensive. Ribit Mishtana (ריבית משתנה) may be cheaper at first, but it exposes you to future changes that could increase your repayment.
Why are CPI-linked tracks considered riskier?
Because when the index rises, the Principal can also rise. In other words, not only might the monthly payment increase—the outstanding debt itself can also grow, potentially leaving you with a large debt even after years of payments.
Is the Prime track a good option?
This is a highly flexible track. Its main advantage is that you can generally exit it without penalties, but it is directly and rapidly affected by the Bank of Israel's interest-rate decisions.
In summary
Mortgage tracks are the building blocks of your financial future. Every choice you make today will affect the amount of your repayment and your peace of mind for years to come.
The goal is not only to secure a low interest rate at the outset, but to understand what may happen later—and build a mortgage you can afford even in less favorable scenarios.