Balloon Mortgage Loans Surge 20% in Israel Amid Rising Housing Market Risks

Israel's mortgage market has expanded over the past year, but balloon loans have grown disproportionately, increasing by about 20%, far outpacing overall mortgage growth. By July 2026, the outstanding balance of balloon loans reached 29.2 billion shekels, up from 28 billion shekels in April, marking a 1.5% rise in just one month and 4% over three months. Since the start of the year, balloon loans have increased by 2.2 billion shekels, an 8% rise.

A balloon mortgage loan involves deferring repayment of a significant portion or the entire principal until the end of the loan term, often with only interest paid monthly. For example, a buyer might take a one-million-shekel balloon loan for two years, paying only interest during that period and repaying the full principal at the end. In some cases, even the interest accumulates and is paid at maturity.

Between 2022 and 2024, balloon loans grew notably within the 80/20 financing programs, where buyers pay 20% upfront and the remaining 80% upon property delivery. Developers often provided balloon loans during the waiting period, covering interest costs themselves. This growth represents a deferral of payment risk, as borrowers assume they will refinance, sell another asset, or secure funds by the repayment date. However, falling property prices, changes in financial status, or bank refusal to extend a planned mortgage could leave borrowers unable to repay the balloon amount.

Additionally, the average Israeli mortgage reached 1.2 million shekels, close to the all-time high of 1.3 million shekels recorded in March. Total mortgage volume in July hit 11.56 billion shekels, the highest since December 2024.