Loan TypeProsConsFixed rate, Shekel-denominated, CPI-linkedWhen interest rates are low, a low rate can be locked in for the long term.The outstanding balance of the loan is adjusted by the inflation rate.Even if salary increase is above the inflation rate in the long term, in the short term, salaries may lag behind the inflation rate.Prepayment penalties.Floating rate, Shekel-denominated, $ or £ linkedGood for those whose salaries are $ or £ linked or denominated.Loan can always be refinanced if NIS/$ rate deteriorates or if floating interest rates rise.No prepayment penalties.Interest rate shocks.NIS/$ typically adjusts when inflation is rising and fixed rates are going up leaving limited refinancing options.Floating rate, Shekel-denominated, non-linkedEven in hyper-inflationary environments, the balance is not adjusted.No prepayment penalties.Interest rate shocks.When inflation is high, the Israeli Prime Rate typically rises as well.HybridA very low fixed rate can be locked in for the period before the reset date.No prepayment penalties at the reset date.Excellent for those borrowers who can time a reset date to coincide with an expected salary bonus/maturing of keren hishtalmut.Interest rate shocks if no good refinancing option is available.
