Hey everyone, welcome back to My Weird Prompts. We are coming to you from our usual spot here in Jerusalem, and today we are diving into a topic that is basically the national pastime of Israel, other than complaining about the weather or the traffic. We are talking about mortgages, or as we call them here, the Mashkanta.
Herman Poppleberry here, and Corn, you are not wrong. If you sit at a Friday night dinner anywhere in this country, the conversation will eventually turn to two things: how much someone paid for their apartment and the specific interest rate mix they got on their mortgage. Our housemate Daniel actually sent us this prompt because he is looking into the future and trying to wrap his head around how the system works here. It is a bit of a maze, and honestly, even if you have lived here your whole life, the rules change so often that it is hard to keep up.
It really is a unique animal. Daniel mentioned in his prompt that he heard Israeli banks are surprisingly generous with their lending criteria, which he found odd given how risk-averse the country can be in other financial sectors. I want to really dig into that today, Herman, because on the surface, it might look like the banks are just handing out cash, but when you look at the regulations from the Bank of Israel, there is actually a massive amount of scaffolding keeping the whole thing from falling over.
Exactly. The first thing we need to clear up is that perception of generosity. It is not generosity in the sense of loose standards like we saw in the United States leading up to the two thousand eight financial crisis. It is more about a very specific, regulated framework that allows for high leverage under very strict conditions. Let us start with the bare essentials for qualifying, because that is where the foundation is laid. If you are a first-time homebuyer in Israel, meaning you do not currently own any residential property, the Bank of Israel allows you to finance up to seventy-five percent of the value of the home.
Seventy-five percent. That means you need a twenty-five percent down payment. In a market like Jerusalem or Tel Aviv, where a modest three-bedroom apartment can easily run you three million five hundred thousand shekels in early twenty twenty-six, that means you need eight hundred and seventy-five thousand shekels just to get in the door. That is nearly two hundred and forty thousand dollars. That does not feel very generous to me, Herman. That feels like a massive barrier to entry for a young couple.
It is a huge barrier. And it gets even steeper if you already own a home. If you are an investor, or someone buying a second property, the bank will only give you fifty percent. If you are what they call an improver—someone who is selling their current home to buy a new one—you can get up to seventy percent. So the seventy-five percent for first-time buyers is actually the most aggressive stance the banks take. But where the generosity Daniel mentioned might come in is how they calculate your ability to pay. In many countries, getting a loan for seventy-five percent of a million-dollar asset would require an incredibly high salary. In Israel, the banks are often willing to stretch the debt-to-income ratios to the absolute limit allowed by the regulator.
Right, because having the down payment is only half the battle. You have to prove you can actually make the monthly payments for the next twenty-five or thirty years. What are the parameters there?
The main metric is the repayment ratio. The Bank of Israel technically allows banks to let people spend up to forty percent of their net monthly income on their mortgage payment. However, in practice, most banks get very nervous once you cross the thirty-five percent mark. If your household brings in twenty-five thousand shekels a month after taxes, the bank is generally going to limit your monthly mortgage payment to around eight thousand seven hundred and fifty shekels.
And they are very strict about what counts as income, right? They want to see stable, long-term employment. If you are a freelancer or self-employed, they usually want to see at least two or three years of tax returns to establish an average. They are looking for consistency because the Israeli system is designed to prevent defaults at almost any cost.
That is the key point. The default rate in Israel is incredibly low compared to international standards. It is often less than one percent. Part of that is the culture—Israelis will skip meals before they skip a mortgage payment—but a huge part of it is the legal structure. In many parts of the United States, for example, you have what are called non-recourse loans. If you stop paying your mortgage, the bank takes the house, and that is usually the end of it. In Israel, mortgages are full-recourse. If the bank sells your house and it does not cover the debt, they can come after your other assets, your car, your savings, even your future wages. They will find a way to get their money. This is why the banks feel "generous"—they know they have total legal power to collect.
That definitely adds a layer of risk aversion for the borrower that you might not see elsewhere. But let us talk about the actual structure of the loan, because this is where Israel gets really weird. In the United States, you usually get a thirty-year fixed-rate mortgage. You know exactly what you are paying every month until the day the loan is dead. In Israel, that is almost never the case.
Oh, the Israeli mortgage mix is a work of art, or a nightmare, depending on how you look at it. It is called the Tashmit. Instead of one single loan, your mortgage is usually broken into three or four different tracks. The Bank of Israel actually mandates this to protect the economy. They do not want everyone to be exposed to the same type of financial risk. For example, they used to have a rule that at least one-third of your mortgage had to be at a fixed interest rate. While they loosened the "Prime" rule a few years ago to allow up to two-thirds in the Prime track, most consultants still advise a diversified mix.
Let us break down those tracks, because this is where people get confused. You have the Prime track, the Fixed track, and then the Variable track. And then on top of that, you have the choice of whether each track is linked to the Consumer Price Index or not. Can you explain the linkage part? Because that is the thing that shocks most foreigners when they move here.
This is the most important part of the conversation. In Israel, many mortgage tracks are linked to the Madad, which is the Consumer Price Index. This means that if inflation goes up by three percent in a year, your total debt—the actual principal you owe the bank—goes up by three percent. Think about that for a second. You could pay your mortgage faithfully for a year, paying thousands of shekels, and at the end of that year, you actually owe the bank more money than you did when you started because inflation outpaced your principal repayments. This is known as negative amortization, and it is a silent killer of equity.
That sounds terrifying. Why would anyone ever agree to that?
Well, because the initial interest rate on those linked tracks is usually much lower. It looks cheaper on day one. If a non-linked fixed rate is five point five percent, a linked fixed rate might be only three point five percent. People look at that lower monthly payment and think they are getting a deal. They think, "I can afford this house if I take the linked track, but I can't if I take the unlinked one." But they are taking on the risk of inflation. If we have a period of high inflation, like we have seen globally over the last few years, those linked mortgages can become incredibly expensive very quickly.
So you are essentially betting on the future of the Israeli economy. If you think inflation will stay below two percent, you take the linked track. If you want certainty, you take the non-linked track, which we call the Klatz—Kvuah Lo Tzmuda. But the Klatz has higher interest rates because the bank is the one taking on the inflation risk, and they charge you a premium for that peace of mind.
Exactly. And the Bank of Israel has been tinkering with these ratios for years. Recently, they have been very focused on the Prime track. The Prime rate is the Bank of Israel's base rate plus one point five percent. It is usually the lowest rate available, but it is also the most volatile. Every time the central bank raises interest rates to fight inflation, everyone on the Prime track sees their monthly payment go up almost immediately. We saw people's monthly payments jump by fifteen hundred or two thousand shekels in just a year or two as rates rose from their historic lows. That is a massive hit to a family budget that was already stretched thin.
It is a delicate balancing act. You have these different levers. You have the Prime rate, which is transparent but volatile. You have the Fixed Non-Linked rate, which is expensive but safe. And you have the Variable Linked rates, which are cheap now but could bite you later. Most Israelis end up with a mix of all three to hedge their bets.
They do. And there is another factor that is unique to Israel, which is the length of the loan. While thirty years is the maximum, the sweet spot for many is twenty or twenty-five years. But here is the thing: as you get older, the bank gets more restrictive. They want the mortgage to be paid off by the time the oldest borrower reaches age seventy-five or eighty. So if you are starting a mortgage at age fifty, you might only be able to get a twenty-five-year loan, which pushes your monthly payments up significantly. This is why you see so many parents helping their children buy homes early—they want them to lock in those thirty-year terms while they are young.
That makes sense from a risk perspective. But let us go back to Daniel's question about how this compares to other parts of the world. In the United States, for instance, you have the thirty-year fixed rate as the standard. In the United Kingdom, they often do two-year or five-year fixed terms that then reset to the market rate. Israel seems to be this hybrid where you have multiple tracks running simultaneously.
It is a hybrid, and it is also much more of a negotiation than in many other places. In the United States, the rate you get is largely determined by your credit score. If your score is seven hundred and eighty, you get the best rate. If it is six hundred, you pay more. In Israel, credit scores are a relatively new concept. The central credit register only started a few years ago. Before that, the bank just looked at your history with them. Even now, the relationship you have with your bank manager can actually influence the rates you get. If you have a high salary and you have been with the same bank for fifteen years, they might shave zero point two percent off your rate just to keep you.
That is so Israeli. It is all about who you know and how much you can haggle. I have heard of people taking a quote from one bank, walking across the street to another bank, and asking them to beat it by zero point one percent. And it works.
It absolutely works. In fact, it is expected. If you walk into a bank and just accept the first offer they give you, you are probably overpaying by tens of thousands of shekels over the life of the loan. This has given rise to a whole industry of mortgage consultants, or Yoez Mashkanta. These are people you hire to go to the banks and haggle for you. They know the current market rates, they know which banks are looking to grow their loan books this month, and they can often save you much more than their fee. They also help you build the "mix" that fits your specific risk profile.
I think that is a vital takeaway for anyone shopping for a mortgage here. Do not do it alone. The system is designed to be complex, and the banks profit from that complexity. Having an expert who can navigate the Tashmit and the different linkage options is almost essential. But even with a consultant, there are hurdles people forget about until the very end of the process—like insurance.
Oh, the insurance is a big one. In Israel, you are required to have two types of insurance to get a mortgage. You need building insurance, which covers the structure of the home, and you need life insurance for the borrowers. The life insurance is tied to the value of the mortgage. If one of the borrowers passes away, the insurance company pays off the remaining balance of the mortgage to the bank.
Which is actually a great social safety net, even if it is mandatory. It means a tragedy doesn't result in a family losing their home. But it is an extra monthly cost that you have to factor in. And if you have pre-existing health conditions, that life insurance can be quite expensive, or even difficult to obtain. I have heard of people being denied a mortgage simply because they couldn't get a life insurance policy that the bank would accept.
Exactly. I have seen cases where people get all the way through the mortgage process, sign the purchase contract, and then find out they cannot get affordable life insurance, and the whole deal falls through. It is something you have to check early on, especially if you are over the age of forty-five or have any medical history. You also have to remember that the insurance premium increases as you get older, even as the mortgage balance decreases.
So, we have talked about the mechanics and the risks. Let us look at the current state of the market. We are in early twenty twenty-six now. Interest rates have stabilized a bit compared to the volatility of twenty twenty-three and twenty twenty-four, but they are still much higher than the near-zero rates we saw for a decade. How has that changed the way people are approaching mortgages in Israel?
It has made people much more cautious about the Madad, the inflation linkage. When inflation was zero, everyone wanted linked loans because they were cheap. Now that people have seen inflation hit four or five percent, they are terrified of it. We are seeing a much higher demand for non-linked fixed rates, even if they start out higher. People are willing to pay for peace of mind. We are also seeing people take shorter terms on the Prime track, hoping to refinance later if rates drop.
It is also changing the types of properties people are buying. Because the monthly payments are so much higher now, people are having to settle for smaller apartments or move further away from the center of the country. The days of getting a cheap mortgage and buying a luxury apartment in Tel Aviv are long gone for most people. The "generosity" Daniel mentioned is being tested by the reality of the monthly payment.
It is a reality check for the whole economy. For years, the housing market in Israel only went up, and interest rates only went down. That created a bit of a bubble mentality. Now, we are in a more sober environment. But to Daniel's point about risk aversion, the Israeli banks are still very healthy. Because they required those twenty-five percent down payments and because they forced people to diversify their mortgage tracks, we have not seen a wave of foreclosures. The system held up under the pressure of rising rates.
That is a really interesting point. The very things that make the system frustrating and complex for the borrower—the high down payment, the forced diversification, the full recourse—are the things that make the system stable for the country. It is a classic trade-off. You lose some flexibility and simplicity, but you gain a financial sector that is incredibly resilient.
And that resilience is part of why the banks can be "generous" in their own way. They know that if they give you a loan, you are going to pay it back. They have the legal tools to ensure it, and you have the skin in the game with your twenty-five percent equity. It is a high-trust, high-consequence system. But we should mention the "Shamai"—the appraiser—because that is where the "generosity" often hits a brick wall.
Tell me about the Shamai. I have heard that name whispered in fear by many homebuyers.
The Shamai is the bank-appointed appraiser. Once you have a signed contract for a property, the bank sends a Shamai to value it. This is a crucial step because the bank will only lend you seventy-five percent of the appraiser's value, not necessarily the price you agreed to pay. If you agree to pay three million shekels, but the appraiser says the "bank value" is only two point eight million, the bank is only giving you seventy-five percent of two point eight million. You have to find the extra two hundred thousand shekels out of your own pocket.
That is a huge potential pitfall. I have heard of people getting caught in that gap and having to scramble for loans from family or even taking high-interest consumer loans to cover the difference. It just highlights why you need a buffer. You cannot go into a home purchase in Israel with exactly twenty-five percent and not a penny more. You need extra for the appraiser gap, for the lawyers, for the real estate agent fees, and for the purchase tax.
The purchase tax, or Mas Rechisha, is another big one. It is a tiered tax, and it changes every year in January. For a first home, there is an exemption up to a certain amount—usually around two million shekels—but once you get into the three-million-shekel range, you are definitely paying something. For a second home or an investment property, the tax starts at eight percent of the total value from the first shekel. That can be hundreds of thousands of shekels due immediately upon purchase.
So, looking at the big picture, what are the takeaways for someone like Daniel? First, the seventy-five percent limit is real and strict. Second, the mortgage is not one loan but a mix, and you need to understand the risks of each track, especially the inflation linkage. Third, the banks are conservative but negotiable. And fourth, you need a team—a lawyer, an appraiser, and probably a mortgage consultant.
That is a great summary. And I would add one more thing: think about the long term. A mortgage in Israel is often a twenty-five or thirty-year commitment. Do not just look at the monthly payment today. Ask yourself what happens if the Prime rate goes up another two percent, or if inflation stays at three percent for a decade. Stress-test your own budget before the bank does it for you. Also, look into "Eligibility" or Zaka'ut. The Ministry of Housing offers subsidized mortgage tracks for certain groups, like new immigrants or people who have completed military service. The rates aren't always better than the market, but they often have no prepayment penalties, which can be very valuable.
That is sound advice. It is easy to get caught up in the excitement of buying a home, especially in a place as meaningful as Jerusalem, but the math has to work. Herman, this has been a great deep dive. I feel like I understand my own mortgage a little better now, or at least I am more aware of why it is so complicated. It is not just bureaucracy for the sake of bureaucracy; it is a system built on the scars of past financial crises.
It is a never-ending learning process. The Bank of Israel issues new circulars all the time. But the core principles remain. It is about balancing your current cash flow with your future risk. And honestly, despite the complexity, there is something very satisfying about finally getting those keys and knowing that you have navigated the Israeli bureaucracy and come out on top. It is like a rite of passage for living here.
Absolutely. It is a marathon, not a sprint. Well, I think we have covered the essentials. To Daniel and everyone else out there navigating the world of Israeli real estate, we hope this helps clear some of the fog. It is a unique system, but it is manageable if you have the right information and a lot of patience.
And if you have a good haggling voice. Do not forget that. If you aren't arguing with the bank manager over zero point zero five percent, are you even really buying a house in Israel?
Never forget the haggling. Before we wrap up, I want to say a quick thank you to everyone who has been listening. We have hit over five hundred episodes now, and the community around this show is just incredible. If you have been enjoying My Weird Prompts, we would really appreciate it if you could leave us a review on Spotify or wherever you get your podcasts. It really does help other people find the show and keeps us going.
It really does. And remember, you can find all our past episodes and a contact form at our website, myweirdprompts dot com. We love hearing your thoughts and your own weird prompts. Whether it is about mortgages, archaeology, or the best place to get hummus in the Old City, send them our way.
Definitely. We will be back next time with another topic sent in by Daniel or maybe even one of you. Thanks for listening to My Weird Prompts.
Until next time, I am Herman Poppleberry.
And I am Corn. See you later.
