Variable Rate (Every 5 Years) — Complete Guide
Comprehensive guide to variable interest rate mortgages that reset every 5 years: how the rate is set, pros and cons, usage strategies, and when to include this track.
What Is a Variable Rate Every 5 Years?
The Variable 5-Year track is a mortgage option where the interest rate is fixed for consecutive 5-year periods, then resets to a new rate based on prevailing market conditions.
At each reset date, the bank sets a new rate based on current government bond yields plus a margin. This provides medium-term stability with periodic adjustments.
How the Rate Reset Works
At the end of each 5-year period, the bank calculates a new interest rate based on 5-year Israeli government bond yields plus a fixed spread agreed at origination.
Your monthly payment is then recalculated for the remaining loan term at the new rate. This process repeats every 5 years.
The Exit Window Advantage
Israeli law allows borrowers to repay their Variable 5-Year track without any early repayment penalty during a window around the rate reset date.
This provides a built-in refinancing opportunity every 5 years — if the new rate is unattractive, you can pay off the track.
Linked vs. Unlinked Variants
The linked version combines 5-year rate resets with CPI indexation of the principal. The unlinked version has a higher rate but no inflation adjustment.
Your choice depends on your inflation outlook and risk preferences.
Comparison with Prime
While both are variable-rate tracks, Prime changes every 6 weeks while Variable 5-Year stays fixed for 5-year stretches.
Prime offers penalty-free repayment anytime; Variable 5-Year only at reset dates.
Risk of Rate Jumps at Reset
The main risk is a significant rate increase at the reset date. Unlike gradual Prime changes, a 5-year reset delivers the entire adjustment at once.
Borrowers should maintain flexibility to absorb a potential rate increase of 1-2 percentage points.
Who Should Consider This Track?
Variable 5-Year suits borrowers who want more stability than Prime but are willing to accept some rate risk for a lower rate than Fixed Unlinked.
Plan your financial milestones around the reset dates to maximize the fee-free exit benefit.
Frequently Asked Questions
+−How does the rate reset work every 5 years?
The bank sets a new rate based on current 5-year government bond yields plus a fixed spread. Your monthly payment is recalculated for the remaining term.
+−Can I exit the Variable 5-year track without fees?
Yes, Israeli law allows penalty-free repayment during a window around each rate reset date.
+−What is the difference between linked and unlinked Variable 5-year?
The linked variant combines rate resets with CPI indexation. The unlinked variant has a higher rate but no inflation adjustment.
+−How does Variable 5-year compare to Prime?
Prime changes every 6 weeks; Variable 5-year stays fixed for 5-year stretches. Prime offers penalty-free repayment anytime; Variable 5-year only at reset dates.
+−What if rates jump significantly at the reset date?
This is the main risk. A 5-year reset delivers the entire adjustment at once, unlike gradual Prime changes.
+−Can I plan around the 5-year reset dates?
Yes. Align financial milestones with reset dates to take advantage of the fee-free exit window.
+−What percentage of my mortgage should be Variable 5-year?
Typically 20-30%, used as part of the one-third allocated to CPI-Linked or variable tracks in a diversified mortgage mix.