The Fixed CPI-Linked Track (KATZ)
The fixed CPI-linked track, or KATZ for short, is a loan where the interest rate is fixed but the principal is linked to inflation. It's a popular loan that strikes a compromise between security and cost.
Regulatory requirements
The total funds in the KATZ and/or KALATZ and/or government-subsidized mortgage (ZAKAOT) tracks must exceed 33% of the mortgage value. This is a requirement of the supervision of the banking system designed to protect borrowers.
What affects the interest rate?
- Loan term — this is the factor with the highest impact. Shortening loan terms significantly reduces the interest rate.
- Loan-to-value LTV — the lower the LTV (the higher the down payment), the better the interest rates.
For up-to-date interest-rate figures, see the interest-rate statistics.
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Early prepayment fee
There is the possibility of an early prepayment fee. The size of the fee depends on the difference between the current market interest rates and your loan's interest rate.
Advantages
This loan is cheaper than the KALATZ track. The lower interest rates let you take shorter loan terms or lower monthly payments. It's a good choice for anyone who wants relative security but doesn't want to pay the KALATZ premium.
Disadvantages
The loan repayment changes every single month in line with the Consumer Price Index (CPI) report. The main problem is the compound interest effect — a monthly rise in inflation accumulates over time and can significantly increase the monthly payment.
During periods of high inflation, the monthly payment can rise significantly and harm your budget planning.
Common mistake
Many people avoid this track entirely on risk grounds. That's a little odd at times, because they have no problem taking the variable rate loan linked to the CPI (MATZ) — which carries a similar indexation risk.
The key is to understand the differences between the loan tracks and to choose according to your inflation expectations and your capacity to absorb changes.