Mortgage tracks: fixed, prime and index-linked
A track defines how interest and principal can change. A mix divides borrowing between tracks.
Fixed unlinked loans have a fixed rate without price-index linkage. Fixed index-linked loans can have rising balances and payments despite a fixed rate. Israeli prime is the Bank of Israel rate plus 1.5 percentage points, with a contractual margin for the loan. Variable rates reset on contract dates using a benchmark and margin. Consumer prices and construction inputs are different indices. No track suits everyone.
A rise from 4% to 6% is two percentage points. Index linkage can affect costs separately.
Compare whether rates, index linkage or both can change.
Official source ↗Check your understanding
Is the payment on a fixed index-linked loan guaranteed unchanged?
- Yes, because interest is fixed
- Yes, with multiple tracks
- No, index linkage can change it
Answer and explanation
No, index linkage can change it. A fixed interest rate does not remove index linkage.
What determines reset dates on a variable track?
- The bank’s share price
- The contract
- Only the borrower’s wishes
Answer and explanation
The contract. Check the benchmark, margin and reset dates.
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