My Israeli bank made me sign a 'heter iska' with my mortgage. What is it, and does it change what I owe?

Borrowers abroad tend to sign the heter iska without reading it, on the assumption that it is a religious formality stapled to the real contract. Half of that is right. It is religious, it is standard, and every Israeli bank uses one. It is also a contract term, and one of its clauses can decide where you litigate if the loan goes wrong.

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Detailed Answer

Jewish law prohibits a lender from taking interest from a Jewish borrower, and the heter iska is the workaround the commercial world settled on centuries ago. The document restructures the transaction on paper as a partnership: the bank supplies capital, the customer employs it, and what the bank receives is characterised as its agreed share of the profit rather than ribit. Israeli banks operate under a general heter iska approved by the Chief Rabbinate or a recognised rabbinical court, applied across shekel loans and deposits alike, which is why an Israeli deposit statement will sometimes describe your return as revach. Israeli civil law is unmoved by any of this. The Interest Law 5717-1957 and, more importantly today, the Fair Credit Law 5753-1993 treat the facility as credit. Section 2 requires a written loan contract with express, documented consent. Section 5 fixes the maximum cost of credit at the Bank of Israel base rate plus 15 percentage points. Section 6 caps arrears interest at that maximum multiplied by 1.2. Section 9(b) lets a court cut an excessive rate down to the permitted ceiling and order repayment of what was overcharged, and charging more than the base rate plus 30 points is a criminal offence carrying up to three years. Banks are inside this regime, not outside it.

The clause that matters for someone living outside Israel is the dispute clause. Many heter iska texts provide that questions arising from the iska go before a named beit din, and where that operates as an arbitration agreement the Arbitration Law 5728-1968 engages: Section 5 obliges the civil court to stay proceedings on the other party's application, and Section 27 allows only 45 days from delivery of an award to apply to set it aside. A borrower in Los Angeles or Marseille who assumed any fight would land in a Tel Aviv district court can find themselves in a rabbinical forum instead, conducted in Hebrew, on a timetable that assumes local attendance. Two further points are worth flagging before signing. The heter iska is almost always supplied in Hebrew only, and the bank is under no duty to translate it, so ask for a certified translation before signature rather than after default. And it does nothing for your tax position: your home revenue authority will treat the bank's profit share as interest income, and the Israeli bank will withhold on the same basis, whatever the document calls it. Our guide on how non-residents get a mortgage in Israel sets out the rest of the lending pack.

In Practice: Section 5 of the Fair Credit Law 5753-1993 caps the cost of credit at the Bank of Israel rate plus 15 percentage points, so at the 3.5% rate in force since July 2026 the ceiling is 18.5% a year, meaning a maximum annual credit cost of NIS 185,000 on a NIS 1,000,000 facility, with arrears interest capped at 22.2%. Section 9(b) empowers the court to reduce an excessive rate and order refunds, and the Banking Supervision Department of the Bank of Israel handles complaints against a bank's conduct. If the heter iska sends the dispute to a rabbinical court, Section 27 of the Arbitration Law 5728-1968 leaves only 45 days from delivery of the award to challenge it.

When to Consult a Lawyer

• The heter iska names a specific beit din and you are being asked to sign while living abroad, since that clause may govern any later dispute about the loan
• The bank's stated cost of credit, once fees, insurance and linkage are added, approaches or exceeds the Section 5 ceiling
• You are refinancing or repaying early and the bank is quantifying its "profit share" in a way that differs from the early-repayment calculation the loan agreement itself sets out

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Speak With an Israeli Attorney

An Israeli lawyer reads the heter iska against the loan agreement, prices the real cost of credit against the statutory ceiling, and negotiates the dispute clause before you sign.

Contact us for a confidential initial consultation.