Important Points About Mortgage Refinancing

Mortgage refinancing is a term everyone knows, but not everyone understands what it means and what the broader implications or advantages are. When the interest rate has dropped more than once, and with a forecast that it may continue to fall, it is worth getting to know the process and examining whether it is the right time to do it. Meir Wider, CEO of Wider Mortgages, assists us with an explanation and examples.

What is mortgage refinancing actually? It is a process of replacing an existing mortgage with a new one. The refinancing can be carried out at the same bank where the mortgage is managed, or it can be transferred to another bank that offers more attractive terms. As part of the refinancing, it is possible to change the interest rate, the loan tracks, the repayment period, and even the amount of the monthly payment. In fact, it is about adapting the mortgage to the borrower's current economic reality and existing market conditions.

What is done in practice? Wider explains:

"The first stage is a professional examination of the existing mortgage. We examine what the remaining debt is, which tracks exist, whether there are early repayment fees, and what terms can be obtained today in the market. After that, we compare the current mortgage with the possible alternatives. The goal is to check whether the future savings are greater than the costs involved in carrying out the refinancing."

Below is an example: A family that has 800,000 shekels left on a mortgage for a period of 20 years at an average interest rate of 5% may save tens of thousands of shekels if it manages to reduce the interest rate by even just 1%.

When is it really worth refinancing?

Wider explains that there are several situations in which it is worth checking the matter:

1. When interest rates in the economy fall relative to the time the mortgage was taken, it may be possible to obtain better terms.

2. In the event that there has been a change in the family's economic situation, for example, an increase in income, receiving an inheritance, selling a property, or accumulating savings, it is sometimes possible to build a more efficient mix and reduce financing costs.

3. It is also correct to examine the move in the event that the monthly payment has become burdensome, and refinancing may help, through restructuring the loan and reducing the current payment.

Who is mortgage refinancing suitable for? The simple answer is that almost every mortgage holder should check once in a while whether refinancing is worthwhile for them. Even if no change is made in the end, the check itself allows one to understand whether the existing mortgage still fits the needs and market conditions.

Wider emphasizes:

"It is important to remember that not every refinancing is profitable. There are cases where early repayment fees or a low loan balance make the move less worthwhile. Therefore, it is important to perform a professional and in-depth check before making a decision. Today, the tracks change every short period, and sometimes it is also worth switching between variable and fixed tracks and between linked and unlinked ones. The prime component has dropped significantly in the recent period, and this allows for increasing the prime component and obtaining better terms on the mortgage."

This column was published on Friday in the Yediot Aharonot supplement, in the "Real Estate Between the Lines" section.