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Refinancing a mortgage – important legal information for mortgage holders

Michael Decker
Michael Decker

Refinancing a mortgage — if you have heard the term but did not understand what it is and what it is meant for, you are not alone. Many take out a mortgage in order to buy an apartment, but are not aware of the fact that throughout the mortgage repayment period, they can renew the terms of the mortgage with payments that will be more convenient than the initial ones. There are several ways to do this, but they all require careful conduct and an understanding of the legal terms of the refinanced mortgage. Attorney Michael Decker, a partner in our firm and an expert in real estate law, will explain this important topic in the following article.

Our office, in Jerusalem and Tel Aviv, specializes in real estate law. The office provides its clients with advice and representation on a variety of issues, such as negotiations in real estate transactions, assistance with real estate taxation issues, leases, registration of rights to real estate, legal advice on mortgage issues, etc.

Mortgage refinancing

Is it a good idea to refinance a mortgage?

Buying an apartment has become almost impossible for the majority of the population in Israel. Estimates indicate that today about 150 salaries are required to cover the astronomical costs of buying an apartment. These high prices, in most cases, require taking out a mortgage to finance the purchase. But getting a mortgage is not the end of the story. In view of the ancillary costs of purchasing an apartment, the extended payback period, and the many fluctuations in interest rates, what often happens is that mortgage terms that sounded attractive at the beginning become unaffordable when the monthly payment amount goes up.

One solution to this problem is to perform a procedure called mortgage refinancing, which means replacing an existing mortgage with a mortgage under updated conditions. This procedure has become very common in recent years, given the changes in interest rates and market conditions. It is also relevant in cases where those who took out a mortgage have saved a considerable amount of money that allows them to pay off a significant part of the mortgage balance, and in other cases as well. However, it is important to know that this procedure may have various legal consequences, which can sometimes make the deal unprofitable. This is why it is not recommended to refinance a mortgage without a thorough examination of the conditions of the renewed mortgage.

What types of mortgage refinancing are there?

There are two main types of mortgage refinancing. One type is called internal refinancing, involving a change in the existing mortgage terms. In such cases, the mortgage holder carries out the refinancing at the same bank where they initially took out the mortgage. A second type is called external refinancing. In these cases, a new mortgage is taken out at a different bank, usually reduced by the amount paid up to then on the preceding mortgage. It is important to emphasize that, in principle, there is no limit to the number of times a mortgage can be refinanced. However, in light of the consequences we will explain below, it is important to always examine not only the terms of the refinanced mortgage, but also the legal implications of the procedure.

What issues may arise when refinancing a mortgage?

The decision to refinance a mortgage may be fateful, so it is important to examine all the possible variables within it, and not just the terms of the monthly payments. First, often a fee for early payment will be charged on the mortgage that has already been taken out. Sometimes these are significant amounts, which in themselves may make the deal unprofitable. It is also important to take into account a possible increase in the interest rate on the mortgage in the future. Even if the interest rates are attractive when taking out the new mortgage, this may certainly change later and possibly cause you to regret changing the mortgage terms. What is more, refinancing a mortgage may have consequences for the mortgage insurance and its terms.

It is important to remember that taking out a new mortgage involves creating a new contract with new terms. These terms may be difficult to understand if you are unfamiliar with the world of contract law and, in particular, real estate contracts. Therefore, even if you consulted with an expert regarding the terms of the previous mortgage, this does not obviate the need to consult on the terms of the newly proposed mortgage  before taking any action on the matter. This is to clarify whether the proposed mortgage refinancing is indeed profitable in your case, or whether it is worth changing the terms of the proposed mortgage or even staying with the same mortgage you have already taken out.

Contact a lawyer specializing in real estate law

In conclusion, mortgage refinancing is an action that may be of great value for those who have taken out a mortgage and need to change its terms. However, it is important to check the terms of the alternative mortgage carefully before approving the transaction. If you have any questions or need individual advice on the subject, an attorney specializing in real estate law from our office will be glad to give you professional and comprehensive assistance. You can contact us at the phone numbers and email address below.

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