When Should I Refinance My NJ Mortgage?

You’ve probably heard pitches and received letters in the mail touting the benefits of refinancing your mortgage.

What does that mean for you? When you refinance your mortgage, you get a new home loan to replace your current one. The appeal is a lower interest rate to help you save money on your monthly payment, or the ability to access your home’s equity as cash.

According to NerdWallet, refinancing could save you more than $150 a month, even if you purchased or refinanced a home as recently as May 2019. Peapack-Gladstone Bank can help you understand the benefits of refinancing a home in New Jersey and decide whether it makes sense for you.

The Benefits of Refinancing a Mortgage in New Jersey

Refinancing your mortgage can help you get ahead financially in numerous ways, including:

  • Reducing your monthly mortgage payment by securing a lower interest rate
  • Providing a shorter loan term (e.g., 15 vs. 30 years) to help you pay off your mortgage faster
  • Helping you pay down high-interest credit card debt by tapping into your home’s equity
  • Changing your mortgage term from adjustable to fixed to align with your current needs

How to Qualify for a Mortgage Refinance in NJ

Lenders will assess these factors to determine your eligibility for refinancing. 

  • The amount of equity in your home: Typically, lenders require at least 20% equity before you can refinance. If you’re not there yet, consider making an extra mortgage payment or paying more than your monthly payment to reduce your principal.
  • A good credit score: If your credit score has decreased since you took out your mortgage, you may not qualify for refinancing. Before you apply, be sure to improve your credit score. You may also consider tapping into a government program that can offer assistance, like FHA.
  • Job and income stability: If you were unemployed or have switched jobs over the last several years, you might not qualify for a lower rate. Lenders also like to see that you have extra cash on hand in case you lose your job. Homeowners who are living paycheck to paycheck or carrying significant credit card debt aren’t typically rewarded with a lower rate. If you’re in this position, consider a co-borrower and start building an emergency fund.

Deciding Whether to Refinance Your NJ Mortgage

Refinancing your home loan isn’t free. At a minimum, you’ll pay closing costs, attorney fees and bank fees. The money you save by refinancing, however, could outweigh these up-front costs. To find out if refinancing makes sense for you, calculate your break-even point. This will help you determine how long it would take for the refinance to pay for itself in savings. Here’s how it’s calculated:

Break-even point (in months) = Closing costs/monthly savings

Consider this example:

  • $7,000 in closing costs (with taxes)
  • $150 of monthly savings

Using the figure above, it would take 46 months to break even on the cost of refinancing. In general, if you plan to stay in your home for longer than the break-even point, refinancing can be beneficial.

Before you choose to refinance, keep an eye on current mortgage rate trends. Use our mortgage calculator to estimate your potential new monthly payment or view our current mortgage rates.

Refinancing with a VA Loan

If you are a veteran, consider refinancing with a VA loan backed by the Department of Veterans Affairs. If you qualify, this is considered one of the best mortgage loans available to you. VA loans require no down payments or mortgage insurance. Typically, these home loans have more lenient qualifications than conventional mortgages in terms of credit score and the amount of home equity required.

You’re eligible for the VA financing program if you’re an active-duty servicemember or veteran who was honorably discharged and meets one of the following criteria:

  • You have served 90 consecutive days of active service during wartime
  • You have served 181 days of active service during peacetime
  • You have more than 6 years of service in the National Guard or Reserves
  • Your spouse was killed in the line of duty and you have not remarried

Refinancing with an FHA Loan

If your credit score isn’t in excellent or you have a high debt load and not much equity in your home, an FHA loan may help. This is another home loan program that’s backed by the government. The Federal Housing Administration is the world’s largest insurer of residential mortgages. These loans available to homeowners with the following qualifications:

  • You have a FICO score of at least 500
  • Your debt-to-income ratio is less than 43%
  • You have steady income and proof of employment
  • The home being financed is your primary residence
  • You’re able to pay a mortgage insurance premium (this is required)

Refinancing can help homeowners save money or obtain cash, but everyone’s situation is personal and unique. Connect with one of our Peapack-Gladstone Bank home loan experts in New Jersey to learn more about your refinancing options.