Israeli mortgage borrowers are beginning to see relief as sharp declines in government bond yields start filtering into bank pricing. The change follows, in part, comments by Bank of Israel Governor Amir Yaron signaling that interest-rate cuts may come sooner if the shekel stays strong and inflation expectations ease.
At Mizrahi Tefahot, the average rate on the non-indexed variable mortgage track fell by about 0.3% at the June 11 benchmark update for a two-year period. Bank Leumi is also expected to lower rates, with its next update due on June 20, when fixed, non-indexed mortgage rates are expected to drop by about 0.2%.
The article explains that mortgage pricing is tied to bond yields in two main ways. In fixed-rate loans, banks fund themselves through deposits and bond issuance, so lower borrowing costs tend to translate into cheaper mortgages. In variable-rate loans, the rate is based on an anchor, often linked to government bond yields, plus the bank’s margin, and many such anchors are updated twice a month.
Bond yields have fallen sharply over the past month. The two-year government bond yield dropped 43 basis points, from 3.64% to 3.21%, while the five-year yield fell 40 basis points, from 3.77% to 3.37%. Phoenix chief economist Matan Shtrit said Israel’s cycle is diverging from global markets because the strong shekel is easing inflation pressures and inflation expectations, helping drive yields lower.
Mortgage advisers say the effects should be felt soon, especially for borrowers whose loans are reaching a reset date. Esther Jean Ibgui said borrowers with variable-rate mortgages will benefit when their adjustment date arrives, while Nofar Yaakov of the Israel Mortgage Advisers Association said a 0.3% drop in the anchor on a 500,000-shekel, 25-year mortgage would cut monthly payments by about 85 shekels and save roughly 5,000 shekels over five years. On fixed-rate loans of 500,000 shekels over 25 to 30 years, a 0.2% reduction could save about 20,000 shekels over the full term.
Advisers say this is a good time to compare offers and review refinancing, but not to delay automatically in hopes of further declines. They warn that bond yields can move quickly and banks do not always pass on the full reduction.
