Israeli mortgage borrowers are starting to see lower rates as government bond yields drop, driven in part by comments from Bank of Israel Governor Amir Yaron about the possibility of earlier rate cuts. The lower yields are expected to make some mortgage tracks cheaper this month, with lenders already adjusting pricing.
At Mizrahi-Tefahot, the bank says its non-indexed variable-rate track, updated on June 11, has already fallen by an average of about 0.3% on a two-year term. Leumi is also seeing a similar trend, and on its next update date, due June 20, fixed non-indexed mortgage rates are expected to fall by about 0.2%.
The article explains that bond-market moves feed into mortgages in two main ways. In fixed-rate loans, banks fund themselves through deposits and bond issuance, so lower bond yields reduce their funding costs and can translate into cheaper loans. In variable-rate loans, the benchmark rate is linked to a bond yield or to the prime rate, and in many cases the benchmark is updated twice a month.
Yields have fallen sharply over the past month, with the two-year government bond dropping 43 basis points from 3.64% to 3.21%, and the five-year bond falling 40 basis points from 3.77% to 3.37%. Phoenix chief economist Matan Shtrit said Israel’s situation differs from global markets because the shekel is strong and inflation pressures are easing, which has reduced inflation expectations and increased bets on rate cuts. He said the market is pricing in almost three rate cuts over the next year.
Mortgage advisers say the relief will be felt at the next reset date for variable-rate borrowers, while fixed-rate borrowers benefit from lower rates for the entire life of the loan. Nofar Yaakov, head of the Mortgage Advisers Association, said a 0.3% drop in the benchmark on a NIS 500,000, 25-year loan would cut monthly payments by about NIS 85 and save roughly NIS 5,000 over five years. She added that a 0.2% drop in a fixed-rate loan of the same size and term could reduce total cost by about NIS 20,000 over the full period.
On refinancing, advisers say borrowers should request updated offers and compare options, but not automatically delay decisions in hopes that rates will keep falling. Esther Zhan Ivgi said refinancing makes sense only if it improves the total cost, not just the monthly payment.
