Mortgage Prime Rate Loans Surge Over Half a Billion Shekels Amid Interest Rate Cuts
Since the beginning of 2024, the Bank of Israel has reduced interest rates three times, totaling a 0.75% cut, bringing the rate down from 4.75% in January to 3.5% currently. Over the past two and a half years, the rate has fallen by 1.25%. Concurrently, inflation has significantly eased, with June's consumer price index expected to drop to 1.6%, near the Bank of Israel's lower target and far from the peak inflation above 5% recorded a few years ago.
This environment has directly benefited mortgage borrowers, who are seeing average monthly repayments decrease by hundreds of shekels. Many borrowers are not only benefiting from lower rates but are also reconsidering their mortgage compositions to optimize costs amid the new economic reality. Mortgage market reports indicate that both new and existing borrowers are increasingly combining multiple mortgage tracks due to market uncertainty and frequent changes.
A notable trend is the sharp rise in prime rate-linked mortgages, which are non-indexed loans with interest rates set at the Bank of Israel rate plus 1.5%. The volume of mortgages taken on this track jumped by over half a billion shekels within a month, from approximately 1.46 billion shekels in May to about 2 billion shekels in June, reaching the highest level since January 2023. The share of prime rate mortgages in the total mortgage portfolio rose from 9% in June 2023 to 18.2% in June 2024.
Mortgage advisor Avi Yosupov explained that many borrowers had abandoned prime rate loans during the peak interest period but are now returning as rates fall. The average interest rate on prime mortgages in June was 4.6%, down from a peak of 6.4%. However, advisors caution that while the shift to non-indexed prime loans is logical given the current low inflation and expected further rate cuts, borrowers should remain cautious. Interest rates can rise again, and borrowers should carefully evaluate all options and seek professional advice before switching mortgage tracks.
Mortgage consultant Avi Sofer noted increased borrower caution and a tendency to prefer short-term variable non-indexed loans to monitor market developments. He warned against following market fads or herd behavior, recalling the risks borrowers faced during the previous rush to prime rate loans when rates were near zero. The advice is to build a mortgage plan that offers as much certainty as possible for the long term.
The article concludes by emphasizing the importance of informed decision-making and professional guidance in mortgage selection amid ongoing economic shifts.
