Israel's Mortgage Default Rate Drops to 0.6% Amid Surge in Refinancing
Despite high living costs, Israel's mortgage default rate dropped to 0.6% in August 2025, with overdue payments falling to ₪4.102 billion as refinancing hit record highs.
Against the backdrop of a high-interest-rate environment and the rising cost of living, the disposable income of households has decreased. A central question facing the financial sector is how many borrowers are lagging behind on their mortgage repayments for a prolonged period of 90 days. While the absolute volume of overdue mortgages rose significantly, the Bank of Israel closely monitors the percentage of defaults, which has hovered between 0.6% and 0.7% for a long time.
Mortgage Default Trends in 2025
At the beginning of the year, the default rate climbed toward the upper bound of this range, sparking concerns among analysts. In April, the total volume of overdue payments reached roughly ₪4.4 billion, climbing further to ₪4.448 billion in May. However, the proportion of defaults relative to the total mortgage portfolio actually declined to 0.675%.
By June, despite a significant expansion in new mortgage issuance reaching roughly ₪11 billion, the absolute volume of overdue mortgages dropped to ₪4.384 billion. In July, as mortgage issuance surged to ₪11.056 billion—representing a 24% increase—the default rate plummeted dramatically to 0.63%, with overdue amounts shrinking to ₪4.239 billion.
The Impact of Refinancing and Falling Interest Rates
Experts anticipated a potential rise in defaults by August, given that monthly mortgage volumes remained elevated at ₪11.5 billion. Yet, the opposite occurred: the volume of overdue mortgages fell to ₪4.102 billion, representing just 0.6% of total mortgages. This is the lowest figure recorded in recent months, signaling a stabilization aided by slightly lower interest rates compared to the previous year.
"The primary driver behind mortgage arrears has been the high-interest environment, forcing young couples with large loans to shoulder significantly higher monthly burdens at the peak," financial analysts note.
At the same time, falling interest rates have fueled a surge in mortgage refinancing. Last month marked a new record with ₪4.507 billion in refinanced mortgages, as homeowners rushed to lower their monthly payments. Although the housing market shows signs of cooling, high refinancing volumes continue to sustain robust overall mortgage figures across the financial sector.
