When Should You Refinance Your Mortgage?
Expert guide to optimal refinancing timing: Rate drop scenarios, break-even analysis, PMI removal strategies, and term reduction benefits for Bergen County homeowners.
NMLS 1577754 • Licensed in NJ, NY, PA, CT, MD, OH, GA
Rate Drop Scenarios
How much you save based on interest rate reduction (on $500K loan, 25 years remaining)
0.5% Drop
7.0% → 6.5%
May be worthwhile on large balances with low closing costs
0.75% Drop
7.0% → 6.25%
✓ Sweet spot for most homeowners
1.0% Drop
7.0% → 6.0%
✓✓ Excellent refinance opportunity
Top 5 Reasons to Refinance
Rates Drop Significantly (0.75-1%+)
The classic refinance scenario. When market rates drop well below your current rate, you can lower monthly payments and save tens of thousands in interest.
Example: Ridgewood Homeowner
• Current: $600K at 7.5%, $4,197/month
• Refinance: $600K at 6.5%, $3,790/month
→ Save $407/month ($146,520 over 30 years)
Break-even at $12K closing costs: 30 months
Remove PMI (Reach 20% Equity)
Bergen County home values have appreciated significantly. If your home has gained value or you've paid down principal to 20% equity, refinance to eliminate PMI.
Example: Fair Lawn Homeowner
• Bought 3 years ago: $500K home, 5% down ($475K loan)
• Home now worth: $575K (15% appreciation)
• Loan balance: $455K (79% LTV - under 80%!)
→ Refinance to eliminate $285/month PMI
Saves $3,420/year for life of loan
Shorten Loan Term (30yr → 15yr)
Build equity faster and save massive interest by switching to a 15-year mortgage. Monthly payments increase 30-50%, but you own your home in half the time.
Example: Tenafly Homeowner (10 years into 30yr)
• Current: $450K balance, 6.5%, 20 years left, $3,361/month
• Refinance: $450K, 5.75%, 15 years, $3,752/month
→ Pay $391 more/month, but save $200K+ in interest
Own home 5 years sooner + lower rate
Your Credit Score Improved
If your credit score increased 50+ points since your original mortgage, you likely qualify for better rates. Every 20-40 points can reduce your rate by 0.25-0.5%.
Credit Score Impact on Rates
• 620-639 score: ~7.5% rate
• 680-699 score: ~6.8% rate
• 740+ score: ~6.4% rate
→ Improving 620 → 740 saves 1.1% (~$300/month on $500K)
ARM Adjustment Period Approaching
If you have an adjustable-rate mortgage (ARM) nearing its adjustment period, refinance to a fixed-rate mortgage for payment stability and protection against rising rates.
Example: 5/1 ARM Holder
• Current: 5/1 ARM at 5.5% (adjustment in 6 months)
• Rate could adjust to: 7.5%+ based on index
• Refinance to: 30-year fixed at 6.5%
→ Lock in fixed rate, avoid uncertainty
Refinance Decision Framework
1. Calculate Break-Even Point
Closing costs ÷ monthly savings = break-even months. Must plan to stay beyond this point.
2. Consider How Long You'll Stay
Selling within 2-3 years? Refinancing may not recover costs. Staying 5+ years? Strong candidate.
3. Evaluate Total Interest Savings
Look beyond monthly payment. Calculate total interest over loan life, not just monthly cash flow.
4. Factor in Closing Costs
2-5% of loan amount ($8K-$25K on $500K). Shop lenders for best rates and lowest fees.
5. Use Break-Even Calculator
Get exact numbers for your situation. Eliminate guesswork with data-driven decision.
Should You Refinance? Let's Find Out.
Use our free break-even calculator to see if refinancing makes sense for your situation. Get personalized Bergen County rate quotes and expert guidance.
Jimmy Joseph MBA • NMLS 1577754 • jjoseph@cmghomeloans.com