What the Madad is
The Madad (מדד המחירים לצרכן) is Israel's Consumer Price Index, published every month by the Central Bureau of Statistics. Many Israeli mortgage tracks are "linked to the Madad" (צמוד למדד, tzamud). On those tracks inflation does not only affect future interest rates: it changes the amount you owe.
How indexation works
On a CPI-linked track the outstanding principal follows the index. If the index rises by 0.3% in a month, your balance rises by 0.3%, and your next payment is calculated on that higher balance. The interest rate itself can be fixed (Katz, קבועה צמודה) or variable (Matz and the CPI-linked reset tracks); in both cases the balance follows the index.
In simplified form, every month: new balance = previous balance × (1 + monthly inflation) + interest − payment.
Why the balance can grow while you pay
Inflation applies to the whole debt, while in the first years each payment repays only a small part of it. Example: you owe ₪1,000,000 and the index rises 0.5% in one month, so your debt grows by ₪5,000. If your payment is ₪4,500 and about ₪2,500 of it is interest, only ₪2,000 repays principal, and you end the month owing more than before. This is often called the "crocodile mouth": the balance stays flat or rises in the first years instead of falling.
Worked example (assumptions, not a forecast): ₪1,000,000 over 30 years at a fixed 3% plus CPI linkage, with inflation of 3% every year. The first payment is about ₪4,216. In year 10 it is about ₪5,666, because the payment rises with the index. The balance peaks at about ₪1,033,000 and only falls back below ₪1,000,000 after about 12 years. With 2% inflation instead, the balance falls from the first months. A small difference in inflation changes the picture a lot.
What inflation does to your payment
On a CPI-linked track the payment moves roughly one for one with the index: every 1% of cumulative inflation adds about 1% to both the balance and the monthly payment. Check whether your income rises with prices. If it does not, a CPI-linked track takes a growing share of it.
Why calculators that ignore the Madad mislead
A calculator that shows one fixed payment for a CPI-linked loan understates what you will pay whenever inflation is positive. A fairer comparison runs every track under several inflation scenarios, for example 1%, 2% and 4% a year, and looks at both the monthly payment and the total amount repaid.
Indexed tracks usually start at a lower interest rate than non-indexed ones, so the first payment is lower and it is easier to pass the bank's payment-to-income test. The price is that part of the inflation risk moves from the bank to you.
Questions to ask before choosing CPI-linked tracks
- Can my budget absorb a payment that rises with prices for 20 to 30 years?
- Does my income rise with inflation?
- Do I plan to repay early? Fixed CPI-linked tracks can carry an early repayment fee, and an extra "average CPI" fee applies if you repay between the 1st and the 15th of the month.
- How much of my mix is CPI-linked? Non-indexed tracks (Kalatz, Prime, non-indexed reset tracks) limit the exposure.
Try it in the simulator
In the Ribit simulator you can set your own inflation scenario and see how the payment and the total cost of each CPI-linked track change over time. The results are estimates based on the assumptions you choose, not a forecast.