Mortgage Refinancing: When It Pays Off, and When It's Better to Pass
"You should refinance" is something you hear a lot, especially when interest rates in the economy change. Sometimes it really is an opportunity to save tens of thousands of shekels. Sometimes, once you calculate all the costs, it turns out refinancing doesn't pay. A professional review is there to tell the two apart.
When should you look into refinancing?
Interest rates have dropped since you took out the mortgage, or your prime-rate (Bank of Israel rate + 1.5%) and variable-rate tracks are weighing on you.
The consumer price index is rising, and the principal on your CPI-linked tracks keeps growing.
Your financial situation has changed: your income has gone up and you can shorten the term, or the monthly payment has already become too heavy.
You have several high-interest loans, and consolidating them into the mortgage could improve your monthly cash flow.
You want to raise additional funds secured by the property, or remove a borrower from the mortgage.
How much does refinancing cost?
Refinancing isn't just a new interest rate. Before you decide, you need to calculate all the costs:
Early repayment fee: charged mainly on fixed-rate tracks, and it depends on the gap between your interest rate and the average rate the Bank of Israel publishes today. If rates have dropped since you took out the mortgage, the fee may be high.
A file-opening fee at the new bank.
Appraisal, lien registration and insurance when you switch banks.
Refinancing pays off only when the expected savings are clearly higher than the total costs.
A lower monthly payment doesn't always mean savings
The easy way to lower the monthly payment is to extend the loan term. But a longer term means more interest overall. Here's an example for a ₪1 million mortgage at 4% interest:
A 25-year term: a monthly payment of about ₪5,278, and total interest of about ₪583,500.
A 30-year term: a monthly payment of about ₪4,774, and total interest of about ₪718,700.
A payment that's ₪504 lower each month costs about ₪135,000 more in interest. Sometimes that's the right choice, because monthly cash flow matters. But you need to make it with your eyes open.
Sometimes the right answer is not to refinance
A good refinancing review sometimes ends with a recommendation to stay with your existing mortgage. Here's what a client who had the review wrote:
"He talked me out of a refinance that didn't pay off, even though this is how he makes his living. Integrity above all." – Sharon Sidel, architect
How I check
I compare your existing mortgage with the alternatives on the market, calculate all the costs and give you a clear picture: how much you'll save, how much it will cost and what the risk is. If it pays off, I accompany you with the banks all the way to signing.
For more details: Mortgage Refinancing – Feasibility Check and Guidance. Want to check your mortgage? Book an introductory call.
This article is for general information only and does not constitute personal advice.
