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Mortgage Refinancing: A Step-by-Step Guide to Checking Feasibility
Before refinancing, there are five things worth checking in the right order - so you do not discover, after already paying the exit costs, that it did not pay off.
Step 1: Check the current average market rate
Compare the rate you pay today with the average rate currently offered on a similar track. If your mortgage was taken a few years ago, at a time when rates were higher, there may already be potential for savings here.
Step 2: Find out the early repayment fee
This is the point that the most people skip, mistakenly. The early repayment fee can cancel a significant part of the expected saving - especially on fixed-rate tracks, and especially if many years remain on the mortgage. The bank is obliged to provide an estimate on request, and you can also use the dedicated calculator from the Bank of Israel.
Step 3: Calculate the net saving, not the gross one
The monthly saving multiplied by the number of months remaining gives a "gross" saving. From this you need to deduct the early repayment fee and the costs of opening the new file (attorney fees, charges) to get the real saving. If the result is negative or marginal, it is probably not worth moving anything right now.
Step 4: Check whether full or partial refinancing is worthwhile
You do not always need to refinance the entire mortgage. If only some of the tracks in the existing mix are expensive relative to the market, while others are still worthwhile, a partial refinance that deals only with the problematic part can be faster and more worthwhile than a full dismantling.
Step 5: Compare your current bank with other banks
Sometimes your current bank is willing to improve the terms so as not to lose a customer (a route usually called "changing terms"), without the need for a full process of opening a file at another institution. But to know whether its offer is good, you still need a point of comparison from other banks.
In summary
Refinancing a mortgage is one of the most worthwhile checks you can do at no risk - but only if you go through the five steps in the right order. Skipping the early repayment fee check is the mistake that most often turns a refinance that is "worthwhile on paper" into a loss in practice.
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