Israeli mortgage borrowers may soon see lower interest costs and smaller monthly payments as the recent drop in government bond yields starts to reach the mortgage market. At Mizrahi-Tefahot Bank, floating unlinked mortgages tied to the bank’s latest anchor update on June 11 already show an average drop of about 0.3% in the two-year track. Bank Leumi is seeing a similar trend, with its next update due on June 20, when fixed unlinked mortgage rates are expected to fall by about 0.2%.
The article explains that bond-market moves affect two main mortgage channels, fixed-rate loans and variable-rate loans whose benchmark is linked to government bond yields. When bond prices rise and yields fall, banks’ funding costs decline, and that lower cost can be passed on to borrowers. In variable-rate tracks, the benchmark is updated periodically, often twice a month, so the effect can appear quickly.
The drop in yields has been sharp. The two-year government bond yield fell 43 basis points in the past month, from 3.64% to 3.21%, while the five-year yield fell 40 basis points, from 3.77% to 3.37%. Harel? No, Phoenix chief economist Matan Shtrit said the local move contrasts with global markets, where inflation and rate-hike expectations are keeping yields elevated. In Israel, he said, a strong shekel is easing inflation pressure and expectations, which helped push Bank of Israel Governor Amir Yaron to hint that the central bank may use the interest rate tool sooner than previously thought.
Mortgage advisers say borrowers with loans already in variable tracks should begin feeling relief at their next reset date. Ester Jean Ibegi said that when the benchmark drops, the borrower benefits immediately at the next adjustment. Nofar Yaakov, head of the Israel Mortgage Advisers Association, said that on a NIS 500,000 mortgage over 25 years, a 0.3% drop in the benchmark would cut the monthly payment by about NIS 85 and save roughly NIS 5,000 over five years. She added that a 0.2% cut in fixed-rate mortgages on a NIS 500,000 loan over 25 to 30 years would reduce the total cost by about NIS 20 over the life of the loan.
Yaakov and Shtrit said the market is already pricing in almost three interest-rate cuts over the coming year. Advisers say this is a good time to compare offers and consider refinancing, but not to delay automatically in hopes of further declines, because yields can move quickly and banks do not always pass on the full reduction.
