Equal Principal Mortgage — Complete Guide
Comprehensive guide to equal principal (Keren Shava) mortgages: interest savings vs. Spitzer, numerical examples, pros and cons, and who this method suits.
What Is Equal Principal (Keren Shava) Repayment?
Equal Principal repayment, known in Hebrew as Keren Shava, is a mortgage repayment method where the principal portion of each payment remains constant throughout the loan term.
Since the outstanding balance decreases at a steady rate, the interest component shrinks with every payment, resulting in total monthly payments that start high and gradually decrease over time.
How Payments Decrease Over Time
In a Keren Shava loan, the principal is divided equally across all payments. If you borrow 1,000,000 NIS over 25 years (300 monthly payments), each payment includes exactly 3,333 NIS in principal.
Your first monthly payment might be around 7,500 NIS, but by the midpoint it drops to roughly 5,400 NIS, and in the final year it falls to under 3,500 NIS.
Numerical Example: Savings vs. Spitzer
Consider a 1,000,000 NIS loan at 5% annual interest over 25 years. Under Spitzer, you pay a fixed 5,846 NIS per month, totaling approximately 1,753,000 NIS. Under Keren Shava, total payments are approximately 1,627,000 NIS.
That is a saving of roughly 126,000 NIS in total interest paid.
Why Banks Rarely Recommend Keren Shava
Banks earn more when you pay more interest, so Spitzer is the default option. Additionally, the higher initial payments of Keren Shava reduce the maximum loan amount a borrower can qualify for.
Qualification Challenges
Because the initial payments are 25-30% higher than the equivalent Spitzer payment, not every borrower can meet the bank's payment-to-income ratio requirements.
The Bank of Israel requires that your total monthly mortgage payments do not exceed a certain percentage of your net household income, measured against the highest payment.
Who Should Choose Keren Shava?
This method is best suited for borrowers with strong current income who want to minimize total interest costs. It works well for people approaching retirement who want lower payments in their later years.
If you can handle the initial higher payments, the long-term savings are substantial.
Combining Keren Shava with Different Tracks
You can use Keren Shava on any interest track. Some borrowers use a hybrid approach: Spitzer on part of the mortgage for stability, and Keren Shava on another part to reduce total interest.
This flexible combination lets you balance predictability with savings.
Frequently Asked Questions
+−How much can I save with Keren Shava vs. Spitzer?
On a 1,000,000 NIS loan at 5% over 25 years, Keren Shava saves approximately 126,000 NIS in total interest compared to Spitzer.
+−Why are the first payments higher with Keren Shava?
Each payment includes a fixed principal portion plus interest on the full remaining balance. As the balance decreases, interest shrinks and total payments drop.
+−Can I qualify for the same loan amount with Keren Shava?
Usually not. Banks assess eligibility based on your ability to cover the highest payment, which occurs in the first month.
+−Why do banks rarely recommend Keren Shava?
Banks earn more interest with Spitzer because the principal decreases more slowly. Additionally, higher initial payments reduce the loan amount borrowers qualify for.
+−Can I combine Keren Shava with Spitzer?
Yes. Some borrowers use a hybrid approach for different tracks in their mortgage mix.
+−Is Keren Shava good for people approaching retirement?
Yes, the decreasing payment structure means lower payments in later years when income typically decreases.
+−How do Keren Shava payments change over time?
Payments start high and decrease steadily. On a 1,000,000 NIS loan at 5% over 25 years, from roughly 7,500 NIS to under 3,500 NIS.