Managing your mortgage: how to stay in control over time
A mortgage is a long-term commitment, but your circumstances and needs can change over the years. On this page, we will understand how to monitor the loan, when to consider refinancing, what you should know about early repayment, approval in principle, and mortgage insurance, and how to manage the mortgage so that it continues to suit your financial situation in the future.
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A mortgageA long-term loan for purchasing a property, with the property serving as collateral for the bank. stays with you for years, and during that time everything can change: interestThe "price of money" – the amount paid for the use of someone else’s money, as income to the depositor or as a cost to the borrower. rates in the economy, your financial situation, or your future plans. Managing it correctly means checking the loan's condition from time to time and knowing when it may be worthwhile to make changes.
Mortgage refinancing: updating your loan
Refinancing is the process of taking a new mortgage to pay off the existing one. The goal is not to borrow more money, but to improve the terms. In some cases, refinancing can save tens or even hundreds of thousands of shekels (שקלים) over the life of the loan.
When should you consider refinancing?
Situations worth examining
- When market interest rates fall significantly compared with the rates you previously signed.
- When your income increases and you want to shorten the term and save interest.
- When you want to reduce the monthly payment to ease pressure on your budget.
Early repayment fee: the "penalty" for closing the debt
The bank expected to earn interest from you over many years. If you repay the money early, it loses that income and therefore charges a fee.
The fee depends on several factors:
- The type of loan track
- The interest rate set for the loan
- The market interest rate at the time of repayment
In general, as the mortgage progresses and the principal becomes smaller, the early repayment feeA penalty charged for repaying the mortgage before the agreed time. also becomes smaller.
On certain tracks, such as the prime-rate track, there is usually no early repayment fee and you can close them at any time.
Ishur Ekroni (אישור עקרוני): your entry ticket
An Ishur EkroniThe bank’s formal preliminary approval to grant a mortgage based on your credit data and income., or approval in principle, is a document in which the bank states that, based on your information, it is prepared in principle to grant you a mortgage.
- Validity
- Under the law, the bank must preserve the interest rates it gave you in the approval in principle for 24 days.
- Comparison
- The approval in principle now uses a uniform format across all banks, making it easier to compare different offers.
The approval in principle shows:
- The mortgage amount the bank is prepared to provide
- Possible loan tracks
- The interest rates offered by the bank
Mortgage applicants who are refused: what happens if the bank says no?
How can you improve your chances?
A refusal from the bank is not the end of the road.
Options worth examining:
- Increase your equity to reduce the bank's risk.
- Add supporting guarantors to the loan.
- Contact non-bank lenders that specialize in more complex cases.
Sometimes the reason is technical, such as missing documents, and sometimes it is substantive, such as a problematic credit history or low income.
Mortgage insurance: protection for you and the bank
For most mortgages, the bank requires you to obtain two types of insuranceA contract under which an insurance company undertakes to compensate the insured in the event of damage in exchange for a periodic payment. to ensure that the debt will be repaid under any circumstances:
- Life insurance
- Covers the remaining mortgage balance if one of the borrowers dies.
- Building insurance
- Covers damage to the property pledged to the bank.
Price differences among insurance companies can amount to hundreds of shekels per year.
Frequently asked questions
Is refinancing always worthwhile if interest rates have fallen?
No. You need to calculate whether the savings from the new interest rate are greater than the early repayment fee you will pay to close the old loan.
Must I buy mortgage insurance from the bank where I took the loan?
Not at all. You have the full right to buy insurance from any company you choose, and the bank must accept it as long as it meets the bank's minimum requirements.
How long does it take to receive an approval in principle?
An initial approval can usually be obtained within several business days, and sometimes even immediately through a digital process, subject to providing the required documents.
In summary
Managing your mortgage correctly is the key to financial peace of mind. Do not be afraid to review your terms once every year or two — a small change today can become a huge saving a decade from now.