Mortgage Refinancing: Is It Worth It in 2025?
The Bank of Israel has lowered the interest rate to 3.5%, with the average non-indexed mortgage rate falling to 4.74%. However, the feasibility of refinancing depends heavily on when the original agreement was signed, as prepayment penalties often offset potential gains. The Bizportal calculator helps borrowers assess their options based on basic loan data.
Following the Bank of Israel's decision in early July to cut the interest rate by 0.25% to 3.5%—the third such cut this year—the question of mortgage refinancing has returned to the spotlight. However, the answer depends far less on news headlines and more on the year you signed your agreement. Data from the Banking Supervision Department for June show that the average interest rate on non-indexed mortgages stands at 4.74%, compared to 5.11% in June 2025. The average rate for CPI-indexed mortgages is 3.45%, though this is a real interest rate to which indexation is added, making direct comparisons difficult.
Who Should Consider Refinancing
The gap between current rates and past agreements determines whether refinancing is worthwhile. The average interest rate for a 25-year non-indexed mortgage was 5.06% in 2023 and 5.05% in 2024, representing a gap of about 0.25% compared to today. Conversely, those who took out mortgages in 2020–2021 (at 3.31%–3.40%) are paying significantly lower rates than the current market average, meaning refinancing would offer no benefit.
It is important to remember that a typical Israeli mortgage consists of multiple tracks. Bank of Israel regulations require at least one-third to be at a fixed interest rate, while up to two-thirds can be in prime. Since the prime component adjusts automatically, it can be modified with minimal cost, whereas the fixed component carries a penalty. Often, the best approach is partial refinancing of flexible components rather than a full overhaul.
Prepayment Penalties
The decisive factor in borderline cases is the prepayment penalty. Under the 2002 Banking Order, this fee is charged when the average interest rate on the day of repayment is lower than your contract rate. The formula is mathematically designed to almost entirely neutralize the profit gained from an interest rate drop.
However, four factors can still leave profit in your pocket:
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Seniority-based discounts: A 20% reduction in the penalty after three years and 30% after five years.
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Fee caps: The bank must charge the lower of two calculation methods.
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Flexible tracks: No prepayment penalty is charged on prime or variable interest tracks where change dates are unknown or set annually.
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Negotiation: The average interest rate is a statistical figure, not the specific offer you might receive.
Additionally, there are minor fees, such as a 0.1% non-advance notice fee if the bank is not notified at least 10 days in advance. The Bizportal calculator allows you to estimate potential savings using only your monthly payment and the year the mortgage was taken. If the calculator indicates real potential, you should request an official explanation page from your bank detailing the exact penalty, which is essential for negotiating against competing offers.
The full article was originally published on Bizportal.
