I’ve been concerned about rising interest rates for a while, and it was this concern that spurred my decision to refinance the portion of our mortgage that wasn’t fixed.
Last week I went into Jerusalem to sign some papers at the bank, and I told the banker I was working with that I had been contemplating doing this since June. She responded that if I had approached her at that point to do a refinance, she would have felt morally wrong to have agreed. She explained that our original loan had amazing terms – the prime rate was 1.9% at the time we got our mortgage – and she would have been protective on our behalf of those terms.
However, with the “rates jumping every day”, she now thinks it’s a good idea.
The prime rate the day that I signed the refinance paperwork was 5.25%. Amazingly, the fixed rate for our refinance is set at 5%. The very first month of our new mortgage payment, we’ll be paying less than if we hadn’t taken this step.
This is due to the unusual financial circumstances now present, called the inverted yield curve, in which the long term interest rates are higher than the short term interest rates (typically it’s the opposite). Basically, the bank is betting the odds that the interest rates on this portion of our loan will go back down and they’ll still make money on us after our refinance.
I’m fine with that. I didn’t do a refinance as a money-saving move – I had assumed I’d be paying more in interest, not less – but as a stabilizing step. There’s growing instability in the economy and I want a predictable mortgage payment every month. For those of you in the US where the standard is fixed mortgages, this is a no-brainer, but in Israel where variable rate mortgages are the norm, this is a big deal.
It took a while for this to be completed. It’s a busy time at the bank, and I was told that a refinance of this sort isn’t a priority for the bank because there’s no new money in it for them. But it’s finally done!
Avivah
” I didn’t do a refinance as a money-saving move – I had assumed I’d be paying more in interest, not less – but as a stabilizing step. There’s growing instability in the economy and I want a predictable mortgage payment every month.”
This clarifies things for me. When you previously posted on this topic, I was wondering about the economical strategy here, because the bank usually has a pretty good record of making sure they don’t lose out on any transactions.
This makes a more sense to me now.
I looked into it for us as well, but it didn’t make sense at this point. I’m glad you were able to accomplish this
The bank definitely always makes sure they don’t lose out! It’s our job to look out for our best financial interests, because that isn’t their concern. Generally what benefits them and what benefits us are opposite strategies.
In the US 2007 housing crisis when interest rates went up, mortgage payments shot up, people couldn’t afford the payments, were forced to default, and then lost their homes to foreclosure. We’re collectively looking at rough financial waters coming up and I’m trying to buffer our family.