Consumer Price Index and Linked Mortgage 2026

A CPI-linked mortgage is one of the common mortgage options in Israel — but many do not truly understand how the index affects the repayment and the loan itself. Here’s a complete explanation with numerical examples.

What does "linking to the index" actually mean?

In a CPI-linked loan, the principal of the loan itself (not just the interest) is updated monthly according to changes in the Consumer Price Index. This means that if the index rises by 3% in a year, your principal balance increases by 3% nominally — even if you did not take out an additional loan. This is a significant difference compared to non-linked options, where only the interest itself may change (in a variable rate option), but the nominal principal always decreases with each payment.

Who determines the index, and when is it published?

The Central Bureau of Statistics (CBS) publishes the Consumer Price Index on the 15th of each month for the previous month. The change in the index primarily reflects price increases in the Israeli economy — food, housing, transportation, and other items in the general consumption basket.

Simple Numerical Example

Assume a mortgage balance of 1,000,000 ₪ in a CPI-linked option. If the index rises by 3% during the year, your nominal balance will "inflate" to 1,030,000 ₪ — even before calculating the interest itself. This means that even if you are paying the full monthly repayment, the principal balance may still increase (or at least not decrease at the rate you expected) during periods of high inflation.

Why choose a CPI-linked option at all?

CPI-linked options generally offer a lower nominal interest rate than non-linked options, as the bank "compensates" itself against inflation through the linkage itself and not just through the interest. During periods of low and stable inflation, this can lead to a lower overall repayment compared to a non-linked option.

The Main Risk: Unexpected Inflation

The main problem with a CPI-linked option is the uncertainty — unlike a fixed interest rate that you know in advance, the linkage rate depends on the Consumer Price Index published monthly and is not known in advance. A period of unexpectedly high inflation (as we saw in 2022-2023) can significantly increase the debt balance and the monthly repayment.

For example, during a period of accumulated inflation of about 10% over several years, a principal balance of 1,000,000 ₪ can swell to 1,100,000 ₪ nominally — even if you paid all the repayments in full and on time. This is a significant difference compared to a non-linked option, where the principal steadily decreases with each payment.

How does this affect the actual monthly repayment?

In most CPI-linked mortgage options, the monthly repayment is updated periodically (usually once a month or once every three months) according to the principal update — so you may see your monthly repayment change from time to time, even if you have not changed anything in your mortgage mix. It is important to regularly monitor your bank statements and not assume that the repayment will remain fixed throughout the loan period.

How to manage linkage risk in the mortgage mix?

Most advisors recommend not loading the entire mortgage on a CPI-linked option, but rather spreading it across options (fixed non-linked, variable every 5 years, and linked) — to balance cost (lower interest in linked) with stability and certainty (fixed non-linked interest). A typical mix may include one-third in each option, but the exact composition depends on your personal risk tolerance and your inflation forecast for the medium term.

When is a CPI-linked option actually worthwhile?

A CPI-linked option may be particularly beneficial during periods of low and expected inflation, or for borrowers whose income is itself linked to the index (for example, salaries in certain sectors that are automatically updated) — in such cases, the rise in the index is partially offset by the rise in income, reducing the effective risk.

Frequently Asked Questions

Can you exit a CPI-linked option in the middle of the period?
Yes, usually through mortgage refinancing, but this often involves an early repayment fee — it’s worth calculating if the switch is worthwhile.

What happens if the index falls (deflation)?
In rare cases of index decline, the principal balance may actually decrease — a positive scenario for the buyer, but relatively rare in Israel.

Do all banks offer the same interest rate in the linked option?
No — the nominal interest rate in the linked option varies between banks, and it is advisable to compare offers from several banks.

How do you know what the current index is?
The Central Bureau of Statistics publishes the Consumer Price Index monthly, and this data is available on its official website.

Is a linked mortgage suitable for everyone?
It depends on the personal risk profile — those who prefer complete certainty in the monthly repayment may prefer a fixed non-linked option, even at the cost of a higher initial interest rate.