Question 1

When does refinancing a mortgage pay off?

Accepted Answer

Refinancing pays off when the saving on payments over the term is larger than the costs: the early-repayment fee to your current bank and the new mortgage's costs (appraisal, opening fee, advice). Check the break-even point too – how long until the monthly saving covers those costs. If you plan to sell or pay off the mortgage before then, refinancing can cost you money.

Question 2

What is the early-repayment fee?

Accepted Answer

A fee the bank may charge when you repay a mortgage, fully or partly, ahead of schedule. It is regulated by the Bank of Israel Governor's Banking (Customer Service) (Early Repayment of a Housing Loan) Order. The main component is the capitalization fee on fixed-rate tracks, reflecting the bank's loss when market rates have fallen since you took the loan. There is also a small operational fee, and on CPI-indexed loans a CPI-averaging fee. The bank gives the exact amount in a payoff letter.

Question 3

Fixed vs prime: what's the difference when refinancing?

Accepted Answer

On a fixed-rate track, if today's average market rate is below your rate the bank charges a capitalization fee – sometimes wiping out much of the saving. On a prime track, whose rate moves with the Bank of Israel rate, there is no capitalization fee, so refinancing a prime track is usually cheap and pays off when you can get a lower spread over prime.

Question 4

What's the difference between refinancing and paying off a mortgage?

Accepted Answer

Refinancing replaces your current mortgage with a new one – at the same bank or another – on better terms. Paying off means repaying the loan, fully or partly, from your own money without a new loan. Either way the bank may charge an early-repayment fee on the repaid part, so check it before deciding.

Question 5

What does the calculator assume?

Accepted Answer

The new mortgage is for the same amount as the remaining principal, rates don't change over the term, there is no CPI indexation, and fees are paid in cash rather than added to the loan. The capitalization fee is estimated as the value of the remaining payments at the average market rate minus the balance, without loan-age discounts. When you have a written quote from the bank, enter its fee in "Bank's quoted fee".

Mortgage Refinance Calculator

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