How Banks Profit From Your Mortgage — and Why It Matters to You

July 24, 20266 min read

In an episode I was a guest on for the podcast "How Did You Make It?", I explained something that made some listeners stop: the bank doesn't just "manage" your money. When it gives you a mortgage, it's actually creating a new, interest-bearing debt. 💡

This isn't said to scare you. It's said to frame the picture correctly:

Your mortgage isn't a favor the bank is doing you. It's one of its most profitable and stable products. And the moment you understand that, you stop apologizing and start negotiating. 🎯

🏦 How does the bank really profit from a mortgage?

Mostly from one thing: interest, over a very long time.

A mortgage is the largest loan most people will ever take, it's secured by a real asset, and it's spread over 20 or 30 years. From the bank's point of view, that's a dream combination: a large sum, relatively low risk, and steady income that lasts for decades.

And here's the point worth internalizing: because of the long spread, even a small difference in the rate adds up to an enormous sum. Half a percent on a mortgage of 1.5 million shekels, over 25 years, is not "a little." It's tens of thousands of shekels, sometimes more.

That's exactly what makes the negotiation stage critical. Not because the bank is "bad," but because it's doing its job: maximizing its profit from the deal. Your job is to look after the other side.

🖨️ "Banks create money" — what does that mean?

This is the point that raised the most eyebrows in the episode, so let's get it right.

When a bank gives a loan, it doesn't pull bills from a vault and hand them to you. It records the amount as a credit in your account. At that moment, new money is created in the system, along with a new, interest-bearing debt. This is how a large part of the money in the economy enters circulation — through credit.

I'm not raising this as a conspiracy theory. It's a basic understanding of how the banking system works. And it matters to you for a very practical reason: it restores your sense of proportion. You're not "begging" for a mortgage. You're a customer buying a product, and a product can be checked, compared, and negotiated.

👀 I explain how the banking system works and how it touches your pocket, on my WhatsApp channel — you can join here.

💰 So what do you do with this knowledge?

You turn it into money in your pocket. Here's where it shows up in practice:

✅ Don't settle with a single bank. Bring offers from several banks and let them compete for you. A real offer from a competitor is the strongest negotiating tool there is
✅ Every fraction of a percent matters. What sounds like "0.3% is negligible" turns into tens of thousands of shekels over the years of the mortgage
✅ The mix matters no less than the rate. The right split between the tracks affects the total cost and your flexibility along the way
❌ Don't accept the first offer as is. The bank's first offer is built, first and foremost, for the bank's benefit

As of July 2026, the Bank of Israel rate stands at 3.75% and the prime at 5.25%. In an environment like this, the difference between a good mix and a mediocre one is significant, and it's all yours.

🔄 And even after you've signed — there's still something to do

It's important to remember that a mortgage isn't a one-time thing. Even if you've already signed, you can check whether it's worth refinancing it and improving the terms, especially if you took it during a high-interest period. And if expensive loans have piled up alongside the mortgage, sometimes the right check also includes consolidating those loans.

The bank keeps profiting every month. You're allowed to come back and check whether your terms are still the best they can be.

💬 Come on, let's talk

Before you close a mortgage, or if you feel your existing mortgage isn't optimal, it's worth having someone stand on your side of the table. I bring the banks into competition, build a mix that fits you, and make sure you don't pay for not knowing. An introductory call at no cost, with no obligation.

I'd like an introductory call with Amalia ←

My door's open 🌸 — Amalia

Questions I hear every week

How exactly does the bank profit from a mortgage?

Mainly from the interest you pay over decades. A mortgage is a large loan secured by property, spread over 20 or 30 years, which makes it a steady, long-term source of profit for the bank. Even a small difference in the rate adds up to very large sums over the life of the loan, so the bank has a clear interest in the terms you sign.

What does 'banks create money' actually mean?

It refers to how credit is created within the banking system. When a bank grants a loan, it doesn't hand you bills from a vault — it records the amount as a credit in your account, and in doing so a new, interest-bearing debt is created. This is how a large part of the money in the economy enters circulation. Understanding this matters because it frames the mortgage as a product the bank sells, not just a favor it does for you.

If that's how the bank works, why take a mortgage at all?

Because for most people a mortgage is the only realistic way to buy a home, and mortgage interest is among the cheapest around, thanks to the security of the property. The goal isn't to avoid a mortgage but to enter it with your eyes open and lock in the best terms you can, instead of accepting the first offer.

How does this actually help me save money?

Once you understand that the bank profits from the margin and the terms, it's clear why you shouldn't settle with a single bank and why every fraction of a percent matters. You bring offers from several banks, let them compete, and build the right mix. That's where the difference of tens or even hundreds of thousands of shekels over the life of the mortgage is found.

Does a mortgage advisor really save me money?

When they bring the banks into real competition and build a mix that fits you, yes. The bank is built to maximize its profit from the deal, and that's legitimate. My job is to sit on the other side of the table, to know what can genuinely be achieved, and to make sure you don't pay for not knowing.