Mortgage Refinancing Emerges as Key Competitive Arena Amid Israel's Interest Rate Cuts

The Bank of Israel's recent decision to lower interest rates marks a significant positive shift for mortgage borrowers in Israel. After a prolonged period of sharp rate hikes that burdened households and increased debt levels, the easing signals a market change, reflected in a sharp rise in mortgage refinancing volumes. In 2025, approximately 69,000 mortgage loans were refinanced in Israel, totaling about 43.6 billion shekels, representing roughly 7% of the banking system's mortgage portfolio, up from an average of 4.5% in previous years.

This increase indicates that more borrowers are actively reviewing and improving their loan terms, viewing refinancing as a legitimate financial tool rather than an exceptional event. The trend is expected to strengthen as interest rates continue to decline, encouraging borrowers who previously saw no benefit in refinancing to reconsider. Economic challenges from the ongoing war, particularly affecting self-employed individuals and small businesses, are also likely to drive more borrowers to explore refinancing options.

However, 88% of refinancing occurred within the original lending bank, with only 12% switching to competitors, highlighting the banks' dominance but also the untapped potential for competition. Non-bank financial entities like Now On are gaining traction by offering more flexible mortgage solutions, including loans fully based on prime rate tracks, which banks typically limit. This flexibility allows borrowers to benefit more directly from future rate cuts, reducing monthly payments more effectively.

Such alternatives are especially valuable for self-employed borrowers who often struggle with the rigid frameworks of traditional banks. Non-bank lenders can provide tailored, faster, and more creative financing solutions, expanding borrower options. While banks still dominate the refinancing market, the growth of non-bank mortgage providers offering long-term loans with lower down payments is poised to increase competition.

As public awareness grows and regulations encourage new entrants, more borrowers are expected to consider switching lenders rather than merely negotiating within their current bank. The Israeli mortgage market is already evolving, driven by borrowers' recognition of their choices and the emergence of alternative financing players.