Can I make early payments on my mortgage or refinance it?

Many homeowners consider making early mortgage payments or refinancing their loans to save on interest, lower monthly payments, or adjust to changing financial circumstances. Early repayment reduces interest costs and can help clear debt before retirement. Refinancing, on the other hand, may allow borrowers to secure better interest rates, lower payments, or extend the loan term for more flexibility. Some also refinance to access home equity for investments or renovations.

Making Early Payments

Israeli banks generally allow borrowers to make early payments, either lump sums or by increasing monthly installments, to reduce the loan principal and overall interest costs. However, prepayment penalties may apply if the mortgage rate is higher than current rates or if payments are made outside designated exit points—specific intervals, typically every five years when extra payments or full repayment can be made without penalties. If interest rates have risen since the mortgage was issued, penalties may be lowered or waived.

For those looking to pay off their mortgage in full, it’s essential to factor in potential penalties, plan around upcoming exit points to avoid unnecessary fees, and assess whether using funds for repayment is the best financial decision compared to other investment opportunities.

Refinancing or Restructuring Your Mortgage

Refinancing allows you to replace your existing mortgage with a new one to secure a lower interest rate, adjust loan terms, or access home equity. While refinancing can lead to significant savings, it may also involve prepayment penalties if done outside an exit point, as well as setup fees. Banks will reassess your financial situation before approving a new loan, so eligibility depends on income, credit history, and overall financial standing.

Restructuring can also help adjust loan terms without changing lenders. This may include switching between fixed and variable interest rates, extending the loan term to lower monthly payments, or adjusting the repayment structure, such as opting for an interest-only period. Some restructuring options may still incur penalties, while others can be negotiated with the bank. The key is to ensure that any savings from lower interest rates or better terms outweigh the costs associated with the restructuring process.

Before making a decision, consult your lender or a mortgage advisor to determine the best strategy based on your financial goals.

This guide is intended to provide the reader with general information and not to serve as legal or other professional advice. Readers are advised to obtain advice from qualified professionals before entering into any real estate transaction.

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