The interest rate is skyrocketing - and how does it affect us? | The complete guide Israel today

The Bank of Israel answered the forecasts and today (Monday) raised the interest rate in the economy by 0.5% to a level of 4.25% - the highest interest rate since 2008. The goal is to curb the rampant inflation when the consumer price index rose once again last week by 0.3%.

But what does all this mean?

And how exactly do all the different numbers relate to us?

Everything you need to know about the interest rate increase.

And no, it's not just the mortgage.

Bank of Israel.

For the eighth time in a row, photo: Reuters

Who is affected by the Bank of Israel's decision?

The majority of the economy - the households that have a mortgage or loan at a variable interest rate, the businesses that have credit that is significantly more expensive, the contractors and entrepreneurs who have difficulty financing their activities because of the high interest rates.

The high interest rate also indirectly affects everyone who rents an apartment, and this is because it makes the mortgage more expensive, and in many cases it is the apartment renters who pay the mortgage themselves and pass this increase on to the tenants, that is, they increase their rent.

So why doesn't the Bank of Israel stop anyway?

The actions taken by the Bank of Israel are no different from other central banks around the world.

The goal of the Bank of Israel is to lower the inflation that rose last month to a level of 5.4% per year, while the target range of the Bank of Israel is 1-3%.

In professional parlance, the process of raising interest rates is called "monetary restraint" and its purpose is to "cool down" demand in the economy, in other words to slow down consumption, growth and employment.

In such an environment, prices start to fall.

Governor of the Bank of Israel Prof. Amir Yaron.

"Most of the uploads are behind us", photo: Oren Ben Hakon

Governor of the Bank of Israel, Prof. Amir Yaron, on a trip after raising the interest rate one more time // Photo: L.A.M.

When will interest rates stop rising?

The Bank of Israel does not publish the date when the interest rate hikes will stop, but noted that "most of the hikes are certainly behind us."

We note that in order for this to happen, inflation has to begin to moderate - which is currently expected to happen, according to forecasts, already next month.

In the interest rate market it is estimated that the final interest rate will reach about 4.5%-4.75%.

How much did the mortgage become more expensive?

The Bank of Israel governor's decision to raise the interest rate by 0.5% increases the monthly repayment on her existing mortgage by NIS 127 and adds up to an increase of approximately NIS 967 within 10 months, with the possibility of a fairly certain further increase in the coming months.

The mortgage market (illustration).

An increase of nearly a thousand shekels in ten months, photo: GettyImages

New buildings in Modi'in (archive).

The monthly repayment increased by about NIS 127, photo: Yehoshua Yosef

What are the options for those who have difficulty paying the monthly mortgage repayments?

Today, all banks allow customers to freeze mortgage payments - fully or partially.

Bank Hapoalim, Bank Mizrahi Tefahot and International Bank allow rescheduling of the prime route for up to 30 years, without affecting the interest rate conditions, without commissions, and without small print.

Discount Bank allows rescheduling of the prime route, but only up to the original loan period (and not for 30 years) and only for mortgages made starting in July 2012. Also, Discount Bank announced today that it is giving a very significant benefit to the bank's customers with an active current account - Interest-free loan for the increase in the monthly repayment starting in September, without interest.

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