Mad Hon · Housing cost

Work out whether refinancing your mortgage pays

Work out whether refinancing your mortgage pays. A step-by-step Mad Hon guide for your Housing cost score, written for olim.

1. Know what refinancing means when the loan is a mix.
Michzur mashkanta replaces an existing housing loan with a new one, and because an Israeli mortgage is assembled from several tracks you can refinance one track and leave the rest alone. That is the first departure from the American model of refinancing the whole thing at a new headline rate. It also changes the arithmetic: the question is not whether your mortgage is expensive, it is which component is expensive relative to what that component costs today, and the answer is usually different for each one.
2. Start with the balance-for-settlement report, in writing.
Ask your mortgage bank for a doch yitrot lesiluk. It lists every active track with its outstanding principal, its contractual rate, its linkage, its remaining term and its monthly payment, and it prices the early-repayment commissions on each one separately. That single document is the whole starting position, and having it in writing is what lets you put it in front of a competitor rather than describing it from memory.
3. Price the exit before you price the entry.
Early repayment of a housing loan is regulated: the commissions a lender may charge are a defined set under the banking order on early repayment of a housing loan, and a lender cannot invent others. The one that decides most cases is the capitalisation commission, charged when market rates have fallen below your contractual rate, which compensates the lender for interest it will not now earn. On a fixed track signed when rates were higher it can be large enough to wipe out the saving on its own; on a prime track there is generally nothing to capitalise. Alongside it sit an operating fee, a commission for repaying without the required advance notice, which written notice inside the defined window removes, an average-index fee on an index-linked track that depends on where in the month you settle, and an exchange-rate fee on a foreign-currency loan. You may ask for a free written explanation of how each is calculated, twice a year, and it is worth asking. Borrowers holding a certificate of eligibility from the Ministry of Construction and Housing are exempt from these commissions.
4. Get three offers, one of them from the bank you are leaving.
Your existing lender is a real competitor: they will often improve terms rather than lose the loan, and asking costs nothing. Add a competing bank and an independent mortgage advisor who is not employed by a lender and who prices a mix against your file. Document each offer the same way: the tracks proposed, every fee, and the total repayment to the end. Comparing monthly payments across three offers with different terms is comparing nothing.
5. Work out the break-even, and be honest about what produced the saving.
Add every one-off cost of moving: the early-repayment commissions from the report, the new lender file-opening fee, registering the charge, any legal fee, and the advisor if you used one. Divide the total by the monthly saving, and you have the number of months before you are ahead. Then check the saving. If the new monthly figure is lower because the term is longer, you have not saved anything, you have rescheduled it, and the break-even calculation will happily tell you otherwise.
6. Expect the lending rules to be applied to you again.
A refinance is not a continuation of the loan you already have. Under the Bank of Israel directive on housing loans, a bank may not refinance if the refinancing creates a breach of the limits or widens one that already existed, so the loan-to-value brackets, the 50 percent payment-to-income ceiling and the 30-year term cap all get tested again, measured on your circumstances now rather than when you first borrowed. If your income has fallen, if you have taken on other debt, or if the property has not appreciated, this is where it shows up. Worth knowing before you have paid for anything.
7. Decide about the term as its own question.
Shortening the term raises the monthly payment and cuts the total interest, because there are fewer years of it. Lengthening it lowers the payment, raises the total, and extends how long you are exposed to rate movements and to index linkage on any linked track. Extending because cash flow genuinely will not carry the current payment is a real decision with a real reason. Extending because the lower figure is more comfortable to look at is a different decision wearing the same clothes, and the offer will not distinguish them for you.

Work out whether refinancing your mortgage pays. A step-by-step Mad Hon guide for your Housing cost score, written for olim.

1. Know what refinancing means when the loan is a mix.

Michzur mashkanta replaces an existing housing loan with a new one, and because an Israeli mortgage is assembled from several tracks you can refinance one track and leave the rest alone. That is the first departure from the American model of refinancing the whole thing at a new headline rate. It also changes the arithmetic: the question is not whether your mortgage is expensive, it is which component is expensive relative to what that component costs today, and the answer is usually different for each one.

2. Start with the balance-for-settlement report, in writing.

Ask your mortgage bank for a doch yitrot lesiluk. It lists every active track with its outstanding principal, its contractual rate, its linkage, its remaining term and its monthly payment, and it prices the early-repayment commissions on each one separately. That single document is the whole starting position, and having it in writing is what lets you put it in front of a competitor rather than describing it from memory.

3. Price the exit before you price the entry.

Early repayment of a housing loan is regulated: the commissions a lender may charge are a defined set under the banking order on early repayment of a housing loan, and a lender cannot invent others. The one that decides most cases is the capitalisation commission, charged when market rates have fallen below your contractual rate, which compensates the lender for interest it will not now earn. On a fixed track signed when rates were higher it can be large enough to wipe out the saving on its own; on a prime track there is generally nothing to capitalise. Alongside it sit an operating fee, a commission for repaying without the required advance notice, which written notice inside the defined window removes, an average-index fee on an index-linked track that depends on where in the month you settle, and an exchange-rate fee on a foreign-currency loan. You may ask for a free written explanation of how each is calculated, twice a year, and it is worth asking. Borrowers holding a certificate of eligibility from the Ministry of Construction and Housing are exempt from these commissions.

4. Get three offers, one of them from the bank you are leaving.

Your existing lender is a real competitor: they will often improve terms rather than lose the loan, and asking costs nothing. Add a competing bank and an independent mortgage advisor who is not employed by a lender and who prices a mix against your file. Document each offer the same way: the tracks proposed, every fee, and the total repayment to the end. Comparing monthly payments across three offers with different terms is comparing nothing.

5. Work out the break-even, and be honest about what produced the saving.

Add every one-off cost of moving: the early-repayment commissions from the report, the new lender file-opening fee, registering the charge, any legal fee, and the advisor if you used one. Divide the total by the monthly saving, and you have the number of months before you are ahead. Then check the saving. If the new monthly figure is lower because the term is longer, you have not saved anything, you have rescheduled it, and the break-even calculation will happily tell you otherwise.

6. Expect the lending rules to be applied to you again.

A refinance is not a continuation of the loan you already have. Under the Bank of Israel directive on housing loans, a bank may not refinance if the refinancing creates a breach of the limits or widens one that already existed, so the loan-to-value brackets, the 50 percent payment-to-income ceiling and the 30-year term cap all get tested again, measured on your circumstances now rather than when you first borrowed. If your income has fallen, if you have taken on other debt, or if the property has not appreciated, this is where it shows up. Worth knowing before you have paid for anything.

7. Decide about the term as its own question.

Shortening the term raises the monthly payment and cuts the total interest, because there are fewer years of it. Lengthening it lowers the payment, raises the total, and extends how long you are exposed to rate movements and to index linkage on any linked track. Extending because cash flow genuinely will not carry the current payment is a real decision with a real reason. Extending because the lower figure is more comfortable to look at is a different decision wearing the same clothes, and the offer will not distinguish them for you.