When might the move get underway?
• How much can borrowers save?
• Why should you pay attention?
• And who is it worth at all?
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Elimination of the prime component limitation: What are the current mortgage terms, what details will borrowers have to take into account and how much are they expected to save?
Mortgage reform - everything you need to know.
When is this change expected to occur
?
It is estimated that this will take several weeks, but it is possible that the dissolution of the Knesset will delay the matter.
From what we see now, the proposed changes have no professional objections nor in the political system.
The fact that the Bank of Israel has adopted the matter will facilitate its transfer.
But as mentioned, changes in legislation are also required, and due to the current political situation, the change may be postponed.
When the change is made, will it be worthwhile for everyone to take a larger share of prime interest rates
?
It is currently allowed to take up to one-third of the mortgage at an interest rate linked to the Bank of Israel interest plus the prime (1.6%), and after the proposed change is accepted, it will be possible to take two-thirds of the mortgage linked to the prime.
Of course no one knows what the interest rate will be over the mortgage years, so we know to be smart only in retrospect on this matter.
Each borrower will have to assess for himself what his expectations are and choose the route accordingly.
What is the relationship between reducing the early repayment fee and changing the mortgage mix
?
The viability of mortgage recycling is largely derived from the cost of repaying the previous mortgage.
MK Dr. Kara illustrates the matter with the following example: A person who took out a NIS 1 million mortgage 25 years ago (end of 2010).
Depending on the limit, he took only 30% at a prime interest rate minus 0.6 of 1% and the rest, 70%, chose to take at an average unlinked fixed interest rate of 5.28%.
Thus, his current monthly payment is NIS 5,338.
Today, the fixed fixed interest rate is 2.71%.
If that person wants to repay the loan, and take out the same mix at the new low interest rate, he will have to pay the early repayment fee, which will reflect all future profits resulting from the interest rate differentials the bank expected to earn, with a 30% discount rate today.
Thus, instead of paying a commission of about NIS 100,000, he will pay "only" about NIS 70,000.
Adding the commission to the balance of the fund and redeploying it for the remaining 15 years will result in a reduced monthly payment - about NIS 5,100 (instead of NIS 5,338).
Savings of about NIS 237 per month resulting from the same 30% discount on the commission.
In contrast, in the new outline, the same person can repay the loan and take in a mix of two-thirds prime and let’s say one-third at an unlinked fixed interest rate, at the new interest rate of 2.71%.
In fact, instead of paying a commission of about NIS 100,000, he will pay "only" about NIS 50,000 (still a high payment, but about NIS 20,000 lower than the current payment).
Adding the commission to the balance of the fund and redeploying the remaining 15 years in the new mix will result in a monthly payment of approximately NIS 4,753.
Savings of about NIS 585 per month, resulting from the same 50% discount and the transition to the new mix with a fixed third limit instead of the prime third limit.
Savings of about NIS 7,023 per year and about NIS 105,000 for the rest of the period.
Who will pay to refinance a mortgage after the change
?
For those who repay an old mortgage, taken out at a time when the interest rate was 4 percent or more, it may be worthwhile to refinance it.
In general, it is advisable to check the feasibility of recycling every few years.
Banks make it possible to simulate a mortgage repayment and take out a new mortgage on improved terms and compare the expected repayment.
After the change, and especially if and when the change of discount in the settlement fee is also approved - it may be profitable for many to refinance the mortgage.