Published by Norman Shapiro

Did you take out a mortgage in Israel three to fifteen years ago linked to US dollars, euros, British pounds or another foreign currency? If so, now may be a good time to review it.

When you arranged that mortgage, the interest rate may have been substantially lower than the available shekel alternatives. That saving could have been the deciding factor in choosing a foreign-currency loan.

But the circumstances that made your mortgage attractive then may have changed. Today, there are two potential reasons to consider refinancing into shekels: the opportunity to lock in a favorable exchange rate and the opportunity to lower your interest rate.

  1. You may be able to lock in a favorable exchange rate

When the shekel strengthens against the currency of your mortgage, the shekel equivalent of your outstanding balance falls. Converting that balance into a shekel mortgage can lock in the benefit of that exchange-rate movement.

A refinance we are currently working on illustrates just how significant this can be.

Our client originally took out a NIS 6.5 million US-dollar-based mortgage. At the exchange rate of NIS 3.76 to the dollar, the loan represented approximately $1.73 million.

The outstanding balance is now approximately $1.7 million. Using an exchange rate of NIS 3.10 to the dollar, that balance can be converted into a shekel mortgage of approximately NIS 5.27 million.

That is approximately NIS 1.23 million less than the original shekel loan amount.

Some of that reduction reflects principal repaid. To see the exchange-rate benefit alone, compare the same outstanding balance of $1.7 million at the two rates:

  • At NIS 3.76 to the dollar, the balance equals NIS 6,392,000.
  • At NIS 3.10 to the dollar, the balance equals NIS 5,270,000.

That is a difference of NIS 1,122,000 attributable to the exchange-rate movement alone.

The favorable shekel valuation already exists while the loan remains dollar-linked. Refinancing allows the borrower to lock in that conversion and eliminate the possibility that a stronger dollar will increase the shekel value of the debt again.

  1. The lower interest rate that attracted you may no longer be an advantage

For borrowers who chose foreign-currency mortgages because of their much lower interest rates, the original decision made sense: why pay a higher rate on a shekel mortgage when borrowing in another currency offered significant savings?

But that comparison deserves another look.

Depending on your existing loan terms and currency, refinancing into a shekel mortgage may now offer a lower interest rate. If the main reason you accepted foreign-currency exposure was to benefit from cheaper borrowing, it is worth checking whether you are still receiving that benefit.

Even if your monthly payment remains manageable, a lower interest rate on a substantial outstanding balance could make a meaningful difference over the remaining years of your mortgage.

Why consider the two benefits together?

Either benefit may justify reviewing your mortgage. Together, they can make the case particularly compelling.

You may now be able to secure a substantially lower shekel balance than the same foreign-currency debt would have represented at your original exchange rate—and obtain a more attractive interest rate in the process.

The opportunity will differ by currency and by loan. A dollar mortgage, a euro mortgage and a sterling mortgage will not necessarily produce the same result. The relevant question is what your particular mortgage looks like today compared with the alternatives available to you.

Is refinancing right for everyone?

Not necessarily. Refinancing costs, any early repayment charges, the bank’s actual conversion rate and the replacement loan’s terms all need to be included in the calculation.

Your income currency matters too. If you earn in the same foreign currency as your existing mortgage, that arrangement may still provide a useful match. After switching to shekels, your payments measured in your income currency could rise if that currency weakens further.

And while converting locks in the exchange rate available at the time, it also means giving up the possibility of benefiting from further shekel strengthening.

The aim is to make a sound financing decision based on the opportunity available today, without needing to predict where exchange rates will go next.

Find out whether your mortgage deserves a fresh look

If you took out a foreign-currency mortgage three to fifteen years ago, a favorable exchange rate could make this a valuable time to reassess it—especially if the original interest-rate advantage has also disappeared.

At First Israel Mortgages, we can review your current loan and assess whether refinancing could help you lock in a favorable shekel balance, reduce your interest costs—or both.

Send us your latest mortgage statement, and we can help you understand your options.

Figures in the example are approximate. Actual conversion amounts and savings depend on the exchange rate applied, loan terms and refinancing costs.