The Government-Subsidized Mortgage (Zakaot)

The government-subsidized mortgage (Zakaot) is a mortgage product subsidized by the Israeli government, offering reduced interest rates and extra benefits to eligible borrowers in Israel. It's a special loan that not everyone can get.

Regulatory requirements

At least 33% of the mortgage must be composed of fixed CPI-linked (Katz), fixed unlinked (Kalatz), or Zakaot loans, according to the supervision of the banking system guidelines.

What affects the interest rate?

• Loan duration — this is the main factor. Shorter terms qualify for lower interest rates.
• Interest rate cap — the interest rate cannot exceed 3% per year.
• Uniformity — a unique feature: the interest rate doesn't depend on the loan-to-value LTV (LTV) ratio — every borrower receives identical rates.

For up-to-date interest-rate figures, see the interest-rate statistics.

Advantages

• No early prepayment fee — under the Banking Ordinance, Section 2, there is no early prepayment fee on the Zakaot loan.
• Discounts on prepaying other loans — having a Zakaot loan in the mortgage mixture earns you progressively larger discounts when prepaying other mortgage tracks, depending on how much time has elapsed:

  Time elapsed since taking the loan	With Zakaot loan	Without Zakaot loan
  Less than one year	0% discount	0%
  More than one year and less than two years	10% discount	0%
  More than two years and less than three years	20% discount	0%
  More than three years and less than four years	30% discount	20% discount
  More than four years and less than five years	40% discount	20% discount
  More than five years	40% discount	30% discount

• Discount on the real estate valuer's fee — eligible borrowers get discounts from real estate valuers.

Disadvantages

• CPI-linked — the monthly payments move with the Consumer Price Index (CPI), which creates a compounding effect over time (compound interest).
• Banks may raise interest rates — some institutions may raise the interest rate when this loan is included in the mortgage mixture. Read more about this in the article on Ynet.
• Structural issues in the portfolio — the loan can reduce the overall optimization of the mortgage.

Common mistakes

• Taking the loan when you don't need it — it's worth checking whether the benefits really pay off in your specific case.
• Lack of awareness of the CPI linkage — many borrowers don't realize the loan is linked to inflation.
• Underestimating the time it takes to get the certificate — getting the eligibility certificate that lets you take the loan is a nightmare. The mortgage bankers will put you through the wringer to get the certificate, and once you start the process it can take anywhere from two weeks to a month before it actually comes through — because the Ministry of Housing is involved. If you need a mortgage in a hurry, skip the pleasure.

The Zakaot loan can be an excellent opportunity for those who qualify, but it's important to understand all the implications — especially the CPI linkage and the effect on the rest of the mortgage mixture.

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