Calculate how much interest you save and how many months you cut from your Israeli mortgage by making extra monthly payments. Enter current balance, rate, remaining term, and extra payment.
See how much interest you save and how many months you cut from your Israeli mortgage by making extra monthly payments. Israeli banks generally allow partial early repayment on prime-linked tracks without penalty.
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Total interest without overpayment
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Your breakdown
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How the overpayment calculation works
The calculator first computes the standard monthly payment for the current balance, rate, and remaining term using the PMT formula. It then simulates two amortization schedules side by side: one with only the standard payment, and one with the standard payment plus the extra monthly amount. Both schedules track the declining balance month by month. The original schedule runs for the original number of months. The overpayment schedule runs until the balance reaches zero, which happens sooner. The difference in months is the time saved. The difference in total interest paid across both schedules is the interest saved. The calculation assumes the extra payment is applied directly to principal each month, which is the most common arrangement when a borrower instructs the bank to reduce the outstanding balance.
When overpayment makes the most financial sense
Overpaying your mortgage makes the clearest financial sense when your mortgage interest rate (after any tax deductibility, which does not apply to residential mortgages in Israel) exceeds the net after-tax return you could earn on the same cash in a savings account, government bond, or investment portfolio. With Israeli savings account rates around 3 to 4 percent and mortgage rates around 5 to 6 percent in mid-2025, overpaying generally beats saving. If you have high-interest consumer debt (credit cards, overdraft), paying those off first is almost always better. If you have a pension contribution shortfall, maximising tax-advantaged contributions may beat mortgage overpayment depending on the effective tax saving. Overpayment is low-risk, guaranteed return, and psychologically satisfying.
Prepayment penalties on fixed-rate tracks in Israel
For the prime-linked variable track (ribit meshutenet), there is generally no penalty for early repayment because the bank does not have a fixed-rate commitment to lose. For CPI-linked fixed-rate tracks (Kalatz) and unlinked fixed-rate tracks, the situation is different. If you locked in a rate that is now higher than current market rates for the same product, the bank has no incentive to let you out early for free because it would lose a profitable loan. The statutory prepayment penalty formula compensates the bank for this lost income. However, if current rates are higher than your contracted rate (as was the case for many borrowers during the 2022 to 2024 rate spike), there is no penalty for early repayment on fixed-rate tracks either. Check with your specific bank before making large lump-sum prepayments on fixed-rate portions of your mortgage.
Frequently asked questions
Can I make overpayments on my Israeli mortgage?
Yes. Israeli bank regulations permit partial early repayment (pgiya mukdemet) on mortgages. However, the rules and any applicable penalties depend on the specific mortgage track. For prime-linked variable rate tracks, early repayment is generally permitted without penalty because the interest rate floats with the market rate, so the bank has no fixed-rate exposure to lose. For fixed-rate tracks, particularly the CPI-linked (Kalatz) track, a penalty may apply if current market rates for comparable fixed-rate products are lower than your contracted rate. The penalty formula is defined by law and reflects the interest differential the bank loses on the prepaid amount. When current rates are higher than your contracted rate, no penalty applies. Always check your specific mortgage contract and ask your bank about prepayment rules before making a large extra payment.
What is the best way to make overpayments on an Israeli mortgage?
There are two main approaches. The first is to increase your regular monthly payment, telling the bank to apply the extra amount to principal reduction each month. This automatically shortens the term and reduces total interest. The second is to make occasional lump-sum extra payments, often called partial early repayment (pgiya mukdemet), when you have surplus funds such as a bonus, tax refund, or investment proceeds. Some banks allow up to a certain amount per year without paperwork; larger amounts require a formal prepayment request. The most effective strategy for reducing total interest is to make overpayments early in the mortgage term when the outstanding balance is highest and the interest savings from principal reduction are largest. An overpayment of 10,000 ILS in year 1 saves more interest than the same 10,000 ILS overpayment in year 15.
How much interest can I save by paying extra on my Israeli mortgage?
The savings from overpaying depend on the interest rate, the remaining term, and the size of the extra payment. At a 5 percent annual rate with 25 years remaining on a 1,500,000 ILS balance, adding just 1,000 ILS per month extra reduces the term by roughly 7 to 8 years and saves approximately 250,000 to 300,000 ILS in total interest. At a higher rate of 6 percent, the same extra payment saves even more in interest because the base cost of borrowing is higher. The savings are non-linear: as the extra payment reduces the principal faster, interest accrues on a smaller balance each month, compounding the benefit. The calculator shows the exact months saved and total interest saved for any combination of balance, rate, and extra payment.
Does making overpayments affect my credit score in Israel?
Mortgage overpayments do not negatively affect your credit record in Israel. Repaying debt ahead of schedule is viewed positively and does not trigger any adverse credit events. The relevant credit bureau in Israel, Dun and Bradstreet Israel (previously and the Bank of Israel central credit register), records payment history but does not penalize early repayment. The only risk is the prepayment penalty on fixed-rate tracks if current rates are lower than your contracted rate, which is a financial cost rather than a credit scoring issue. After a full early repayment of the mortgage, the lien (sheeud) on the property must be formally removed at the Land Registry (Tabu) through a release process coordinated by the bank, which typically takes a few weeks.