Not all or nothing: How to refinance only the expensive component of your mortgage

When interest rates in the economy peak and inflation erodes savings, the economic reality shifts. In this new series of columns, we aim to simplify complex financial topics and provide essential information and practical tips for money management.

The author is Tomer Varon, host of the podcast "The Money of Life Itself," author of "This Is How You Take a Mortgage," and a financial advisor at RiseUp.

With the Bank of Israel interest rate at 3.5%, the discourse on mortgage refinancing is intensifying. In 2025 alone, approximately 69,000 mortgages were refinanced, totaling 43.6 billion NIS. Given that the total mortgage portfolio in banks exceeds 660 billion NIS, many families still have the potential to improve their financial standing.

What is refinancing?

In short: it is taking out a new mortgage under current conditions to replace an old one. This usually allows for changes to loan tracks, interest rates, durations, and monthly repayments.

I frequently hear phrases like, "I don't think I can improve my situation; I took the mortgage when rates were zero," or the great myth, "I took the mortgage years ago, I've already paid most of the interest." These reveal three common mistakes that keep people locked into expensive loans.

1. "I have interest rates from the past"

Those who took mortgages in 2020–2021 often received low initial rates. However, in variable tracks, the mechanism remains. The interest rate consists of the cost of the bank's "raw material" (government bond yields) plus a margin. When money was cheap, even a high margin resulted in a low total rate. Today, with the cost of money around 4%, that same margin can push interest rates to 7%.

Paradoxically, those who took variable-rate mortgages during the zero-interest era are often the best candidates for refinancing, as margins on new loans have been significantly reduced.

2. The flexibility to decide

A mortgage is a portfolio of several loans. Each track has its own rate, term, and risk level. There is no reason to discard a good fixed-rate track to fix a problematic variable one. You can refinance specific tracks or even use a second-degree lien to transfer part of the loan to another bank, fostering competition without losing your favorable existing terms.

3. "I already paid the interest"

Every mortgage payment includes both principal and interest. While the Spitzer method directs more toward interest early on, interest is not paid "in advance." When evaluating refinancing, the only question is whether you can pay less or reduce risk from this point forward. The past is irrelevant.

Compare three figures: the new monthly repayment (does it fit your cash flow?), the volume of interest paid over the next 5–10 years, and the total cost until the end of the term.

The bottom line

Not every mortgage is worth refinancing. A good mortgage is one that fits your life, not necessarily the cheapest one. Don't be blinded by potential savings; ensure the monthly repayment remains sustainable, allowing you to continue investing in other important life goals.