Mortgage tracks: understand the building blocks of your loan
Mortgage tracks determine how your interest rate, CPI linkage and monthly repayment change over the life of the loan. This page introduces the main tracks, explains fixed versus variable interest and linked versus unlinked loans, and shows how to choose a combination that balances stability, flexibility, and cost.
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A mortgageA long-term loan for purchasing a property, with the property serving as collateral for the bank. is a large and complex loan, so in most cases it is not taken in a single track but divided among several different tracks. This chapter explains 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 rateThe "price of money" – the amount paid for the use of someone else’s money, as income to the depositor or as a cost to the borrower. and under the same terms. In practice, the loan amount is commonly divided into several parts, each called a track.
For example, if you need a mortgage of NIS 1.5 million, you can divide it as follows:
- Part of the amount in a fixed-rate trackA fixed interest rate; however, if the loan is index-linked, the debt will change according to inflation.
- Part in a Ribit Prime (ריבית פריים), or prime-rate, track
- Part in a variable-rate trackAn interest rate that is updated at predetermined points in time according to an external benchmark.
Each part will have different terms—a different interest rate, a different risk level, and sometimes a different repayment period.
The combination of tracks is called a Tamhil Mashkanta (תמהיל משכנתא), or mortgage mixThe combination of several different interest-rate tracks within the same mortgage in order to diversify risk., which we discuss in the next section.
How does it work? The two main features of mortgage tracks
Before discussing the tracks themselves, understand the two main features that make up every track:
1. Fixed interest versus variable interest
Fixed interest versus variable interest
| Feature | 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 five years or in line with the Bank of Israel interest rate. |
| Main advantage | Provides certainty and peace of mind. | Usually begins at a lower rate. |
| Main risk | Will generally be more expensive at the beginning. | The monthly repayment may rise in the future. |
- In the prime-rate track, the rate changes in line with the Bank of Israel interest rate.
- In other tracks, the rate is updated every few years according to market conditions.
- In these tracks, the monthly payment may rise or fall over time.
2. Linkage to the Consumer Price Index
Some tracks link the loan to the Consumer Price Index. The Central Bureau of Statistics publishes this index, which measures changes in the prices of a basket of goods and services purchased by Israeli households—in other words, changes in the cost of living.
- CPI-linked track
- The outstanding loan balance is updated in line with changes in the index. If the index rises, the mortgage principal can also rise, and the monthly repayment may therefore increase.
- Unlinked track
- Your debt is not affected by changes in the cost of living, or inflation.
Comparing tracks: Kalatz, prime, and variable-rate tracks
The following are the most common options in the market:
Kalatz (קל״צ)—unlinked fixed interest
This is one of the most stable and straightforward tracks. The interest rate is set when the mortgage is taken and remains fixed for the entire period. The principal is also not linked to the CPI.
Advantages
- Complete certainty
- Easy monthly budgeting
- No exposure to higher CPI or changes in market interest rates
Disadvantages
- A higher initial interest rate
- An early-repayment fee or penalty if you want to close the loan early
Who it suits: Someone who values stability, certainty, and peace of mind, even at a higher cost.
CPI-linked fixed interest
In this track, the interest rate itself is fixed, but the principal is linked to the Consumer Price Index.
Advantages
- A lower initial interest rate
- Some certainty regarding the interest rate
Disadvantages
- The principal can grow if the CPI rises
- The monthly repayment may rise over the years and create a higher total cost than expected
Who it suits: Someone who understands the risk of CPI linkage and is willing to accept it in exchange for a lower initial interest rate.
Unlinked variable interest
The interest rate is updated at known points in time, such as every five years. At each update point, the bank examines the market interest-rate level and updates the rate for the track. The rate can therefore rise or fall during the life of the mortgage.
Advantages
- A relatively low initial interest rate
- No exposure to a rising CPI
- Flexibility for early repayment
Disadvantages
- The rate can change at update points
- It is difficult to estimate future repayments if market rates rise
Who it suits: Someone seeking a lower initial rate than fixed-rate tracks and who wants to avoid CPI linkage, but is prepared to accept some uncertainty about future interest rates.
CPI-linked variable interest
Neither the rate nor the principal is fixed. The mortgage principal is linked to the Consumer Price Index, so if the index rises, the outstanding loan balance also grows. In addition, the interest rate itself is updated at predetermined intervals, generally every few years.
At every update point, the bank sets a new interest rate based on the rates prevailing in the market at that time.
Because of the higher risk, the initial rate in this track is generally relatively low compared with more stable tracks. Over time, however, changes in the CPI and the interest rate can increase both the monthly repayment and the mortgage's total cost.
Advantages
- A low initial interest rate
- Flexibility to refinance at update points
Disadvantages
- Uncertainty about future repayments and exposure to higher interest rates
- The principal is CPI-linked and can grow when inflation rises
Who it suits: Borrowers who understand the risks and are prepared to accept greater uncertainty in exchange for a lower initial rate, or those who expect to refinance or repay part of the mortgage in the future.
Prime-rate track
In this track, the interest rate changes in line with Bank of Israel decisions. The principal is not linked to the CPI.
Advantages
- Generally no early-repayment penalties
- No CPI linkage
- Very high flexibility
Disadvantages
- High exposure to changes in market interest rates
- The monthly repayment can jump significantly within a short period
Who it suits: Someone willing to live with some volatility and who wants greater flexibility.
Summary table: the main mortgage tracks
The main mortgage tracks
| Track | Description | Advantages | Disadvantages |
|---|---|---|---|
| Unlinked fixed interest | The mortgage rate is set in advance for the entire loan period | Certainty and easy budgeting | A relatively high rate and a high early-repayment fee |
| CPI-linked fixed interest | The principal is CPI-linked and the rate is fixed | Relative certainty, assuming small CPI changes | Monthly payments may rise over time |
| Unlinked variable interest | The principal is not CPI-linked and the rate is variable | Relatively stable monthly payments and flexibility for early repayment | Risk of a significant increase in the interest rate |
| CPI-linked variable interest | The principal is CPI-linked and the rate is variable | Potential to benefit from lower rates and flexibility for early repayment | Uncertain payments and risk of a significant increase |
| Prime rateA base interest rate consisting of the Bank of Israel interest rate plus 1.5%. | The rate is linked to the Bank of Israel prime rate | Relatively low payments when prime is low, flexibility, and no early-repayment fee | Uncertain payments and risk of a significant increase |
Compare and choose wisely
The Bank of Israel publishes monthly information on the interest rates and mortgage tracks offered by banks. We have collected this information on a dedicated comparison page so you can compare it simply and clearly.
Before choosing a mortgage, review the table we created based on data from the Bank of Israel's comparison tool and compare the rates at different banks.
Choosing wisely: how do you choose a mortgage track?
When considering different mortgage tracks, do not look only at today's interest rate. Ask yourselves:
Questions worth asking
- How important is a stable, known payment to us? Consider certainty versus risk.
- How much of an increase in the monthly repayment can we absorb? Examine your financial safety cushion.
- Would we rather pay a little more for peace of mind?
- Do we expect changes in our future income, such as a promotion or a Keren Hishtalmut (קרן השתלמות)A medium-term savings product (six years) that benefits from a tax exemption on investment gains up to the applicable contribution limit. becoming liquid?
- Is it important to preserve the option to refinance or repay the debt without penalties?
The answers will help you understand which tracks suit your circumstances and which ones require 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 in your mortgage. A track is one individual component.
Why divide a mortgage into tracks at all?
To create balance. Every track has advantages and disadvantages. Spreading the mortgage prevents one market change, such as a rise in the CPI, from shaking your entire household budget.
Which is better—fixed or variable interest?
It depends on you. Fixed interest provides certainty but is generally more expensive. Variable interest can be cheaper at first, but exposes you to future changes that can increase the repayment.
Why are CPI-linked tracks considered riskier?
Because when the CPI rises, the principal can also rise. Not only may the monthly payment grow, but the outstanding debt itself may increase, potentially leaving you with a large balance even after years of payments.
Is the prime-rate track a good track?
It is very flexible. Its main advantage is that you can generally leave it without penalties, but it is affected directly and very quickly 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 your repayments and peace of mind for years.
The goal is not only to obtain a low rate at the beginning, but to understand what may happen later and build a mortgage you can afford even under less comfortable scenarios.