Once you’ve established that you can do a Baltimore refinance, and that it makes sense for you to do so right now, the next question will be; what to do with the savings you’ll be getting. While that might sound ridiculous, if you don’t make a plan for what to do with that extra cash, it will just ‘disappear’ into your day to day expenses and will never have the kind of impact on your life that it could.

In previous articles two different suggestions were made for what someone might want to do with their new found savings. In all examples we used a hypothetical monthly savings of $175 with your new mortgage. While that amount of savings is pretty good, it’s probably not enough to make many people overly excited. However, with a bit of disciplined effort applied to that money, we showed how it could turn into something that you can excited about.

In our first example applied the money to pay off existing credit card debts. For our example we used two cards with interest rates of 12% and 16% carrying balances of $4000 and $8000 respectively. In that example we applied the $175 per month to the minimum payments and reduced the pay back period from 23 years to just over 4 years.

In example number 2 we took the savings and applied it towards the principle on your Baltimore mortgage to help pay it off more quickly. Our example used a fixed rate of 5% for 30 years on a $225,000 loan. When we applied the $175 per month savings to the principle, we shaved over seven years off the mortgage and paid it off in just under 23 years rather than 30. What does that add up to for you? Over $58,000 in savings.

Our third option would be for you to invest that money each month. The investment goals could be anything from your retirement to a vacation to a child or grand child’s college expenses. The reason is totally up to you, we just want to show you what you might be able to accomplish with this ‘modest’ monthly contribution.

In trying to predict what kind of return you might get from an investment, we have to make some guesses. We’ll use conservative numbers to be safe.

Let’s say that you start of with $2000 in an investment account and you’re going to add that $175 to it each month for the next 18 years (working on a college fund for a new baby). We’re going to use a conservative annual rate of return of 7% for this example.

At the end of 18 years you would have accumulated over $83,000! That’s a pretty good start for college, I would say.

Now let’s look at a different person; a 30 year old who has plans to retire when they turn 65. Let’s also say that this account is starting with ZERO balance, but gets the $175 every month, compounding at a conservative rate of 7% annually. Given this situation, if you did nothing else for your retirement, by the time you were 65 years old this account would have over $300,000 in it. Again, not too bad.

You need to remember of course that these figures are all hypothetical. If these numbers have got you thinking though, you really owe it to yourself to discuss it in more detail with a Baltimore mortgage lender as well as an accountant and/or a financial planner.

The main take-away here is that while savings may seem like ’small change’ at first, if you can be disciplined enough to apply those savings to a PLAN, you can have a major impact on your overall financial picture. The mortgage on your Baltimore home loan is really just a part of your bigger, overall long term financial plan.

Let’s run some numbers based on an assumption that your new Baltimore mortgage will be a fixed rate mortgage on a 30 year term. Also for the sake of argument, we’ll say the new mortgage is saving you a total of $175 each month. A bit less than $200 is a nice addition each month, but nothing to get overly excited about, right? Well, it depends… what are you going to do with that money?

In a previous example we talked about paying off other debts, such as credit cards. In that hypothetical scenario we used the numbers of two cards with balances of $4000 and $8000 at interest rates of 16% and 12% respectively. We also assumed that you were making just above the minimum necessary monthly payments and that by doing so it would take you TWENTY THREE YEARS to pay them off…. However, if you were to use a disciplined approach and used your new found savings to systematically pay them down, you could reduce those 23 years to just over 4 years, saving a TON of interest on them.

A second option for your savings could be to apply them to your existing Baltimore mortgage every month to help pay down your principle faster. If you were to do this you could dramatically shorten the amount of time it takes you to pay off your mortgage and again, save you an awful lot of money. How much could you save? Let’s take a look.

We need some specific numbers to work with, so let’s go with the following scenario. We’re going to say that your new mortgage is for $225,000 on a 30 year program at a fixed rate of 5%. If you could get yourself to apply that extra $175 you now have each month towards the principle on your new loan, the time it would take you to pay off the loan would be reduced by more than SEVEN YEARS, which would save you over $58,000 in interest on the loan! That is some serious savings!

It’s obvious that the concept of refinancing to a lower rate is very appealing to a lot of people. However, the thing that often gets overlooked is how significant a difference a small change in your Baltimore mortage rate can have on your long term net worth. And considering the economic situation we’re in right now, doing a little long-term planning might not be such a bad thing.

No matter whether you’re looking at a Baltimore refinance or if you’re considering getting a purchase money loan, do your best to look at the power of small but consistent efforts and how it can impact your overall financial picture.

It doesn’t take a huge amount of monthly savings to have a big impact on your long term future. There are typically 3 areas that can be addressed when someone wants to take advantage of these new found savings from a mortgage refinance to improve their net worth.

1. Paying off (or down) other debt that you have at a higher cost, such as credit cards

2. Paying down the principle balance on your Baltimore home loan

3. Using the money to invest in future goals such as retirement or a college savings

If you do have other debts (like most people) such as several credit cards or maybe a car loan, you should compare everything from the interest rate to the minimum payments necessary to the outstanding balance of each against the other. Assuming you’ve been making just the minimum required monthly payments on these, you should now organize them by interest rate, going after the highest one first.

To illustrate, we’re going to use the following hypothetical debts: First Credit Card with $4,000 balance at 16%, Second Credit Card totals $8,000 at 12%, and a Car Loan for $21,000 at 4%. Let’s also say that through your mortgage refinance you’ve been able to gain a savings of $175 per month.

Assuming you were making just over the required minimum monthly payment on your two credit cards, the time it would take you to pay them off completely would be twenty-three years (and you would have to refrain from adding anything to the balance during that time, or else it would just take longer). If you were to decide to use that $175 to regularly apply towards these existing debts in an effort to pay them off, this is how we would recommend you approach it:

First, pay off the highest interest card while maintaining your regular minimum payments on the lower card. Once the first card is eliminated, apply the $175 to the next card (remember to also apply the minimum payment you had been making to BOTH cards). If you were to follow this plan, you could pay off BOTH cards in just over 4 years. That’s a whole lot less than twenty-three! Just think of the amount of interest costs you would be saving…

As you can see, a mortgage refinance can help you a lot in the short term, but can also impact your long term financial goals as well.

1. Decide what you can afford as a monthly payment on your Baltimore mortgage in advance. The general rule of thumb is that you can afford between 2 and 3 times your gross income.

2. Create your home wish list. Then, prioritize the features on your list.

3. Know where you want to live. Create a list of 3 to 5 neighborhoods you would like to live in, and don’t forget to take into account items such as schools, parks, proximity to shopping (or whatever is important to you), and of course, safety.

4. Start saving your money. Do you have enough money saved to qualify for a Baltimore home loan and cover your down payment? Ideally, you should have 20 percent of the purchase price saved as a down payment. And do not forget to factor closing costs into the expenses. Closing costs - including taxes, attorney’s fee, and transfer fees ? typically cost between 2% and 7% of the home price.

5. Get your credit report in order. Get a copy of your credit report to make sure there aren’t any errors on it, and if there are, get them fixed right away. A credit report provides a history of your credit, bad debts, and any late payments.

6. Establish your mortgage qualifications. How big of a mortgage are you able to qualify for? You will also want to have a look at a variety of loan options ? such as 30 year or 15 year fixed mortgages or Adjustable Rate Mortgages ? and then figure out what is best for you.

7. Get pre-approved for your loan. Organize all the documentation a Baltimore lender will need to preapprove you for a loan. Some items you’ll probably need include W-2s, your last couple of pay-stubs, bank statements for the past two months as well as your account numbers.

8. Weigh other sources of help with a down payment. For example, you might qualify for certain special mortgage programs or down-payment assistance programs. Check with your state and local government on down payment assistance programs for first-time buyers. Another option, if you have an IRA account, could be to use that money you’ve saved to buy your first home and you won’t need to pay a penalty for early withdrawal.

9. Calculate the total costs of being a Baltimore home owner. This total cost included property taxes, insurance, utilities, association fees and maintenance.

10. Ask around and find a good Baltimore Realtor. Some first time buyers opt to try to do the deal alone rather than getting an agent. Why even bother? A Realtor is there to represent you and to be certain you get a good and fair deal. And remember, since you’re the buyer in this deal, the cost of the agent’s services will come as a percentage of the sale the seller is getting, so it’s not money out of your pocket.

So what exactly is Mark to Market and why does it matter? Is this going to have any affect on the housing market, and more importantly, directly on your Baltimore home loan?

We are going to do our best to give a summary of it below hopefully so you’ll better understand it, and more importantly, how it has played such a important role in our existing economic crisis, which includes the Baltimore mortgage market. It may come as a surprise to see that this accounting requirement (i.e. law) has significantly more to do with the current economic down turn than possibly anything else.

Before we even consider how Baltimore mortgage rates get affected, let’s first discuss why Mark to Market was even created

To get a grasp on Congress’ inspiration behind the creation of this accounting rule, we need to go back and look at the stock market crash of 2000 – 2002.

At the time, before this rule was created, companies such as Enron and Arthur Anderson found methods for ‘cooking their books’ in order to make their balance sheets appear a lot healthier than they really were. This, in turn, helped their stock values to be falsely inflated, contributing to the ‘bubble’ that we all know eventually burst. When that occurred, a lot of people lost tons of money. To say they were unhappy is a huge understatement. Something had to be done.

The idea of “Mark to Market” accounting was created to try to make things much more transparent and to ensure fair valuation of companies as well as all their assets. To summarize, what it means is that all assets must be valued exactly as if they were to be sold on a daily basis. For those dissenters who decided not to do this conservatively, they put themselves at risk for potential jail time.

Let’s now look at how this rule can cause a problem affecting the whole economy, including Baltimore mortgages.

When you think about the massive amounts of money handled by banks - and the vast (and strange) variations of financial instruments they use, - it can be difficult to try to get one’s mind around exactly what it is they do. It will be easier to describe how this accounting system works using an analogy more approachable to the rest of us.

We’re going to pretend you live in a neighborhood and all the homes are worth right about $200,000. Let’s also imagine that your neighbor owns his house free-and-clear.

Suddenly, you neighbor has some major medical expenses and has to sell his home to pay for them. He is in need of his money right away and doesn’t have the time for a Baltimore refinance, and he isn’t in any position to wait for the best price he can get. So rather than wait, he sells the house for $150,000 to get rid of it fast, even though it’s clear that the property is worth quite a bit more than that.

If you happened to live 2 houses down in a very similar home, does the fact that your neighbor’s house just sold for $150,000 indicate your house just lost 25 percent of its value? No, of course it doesn’t. If you decided to sell your house, you could take the time needed and get the fair market price for it; you would not be forced into a “fire sale” situation.

On the other hand, if you were a public company and had to by law to comply with the Mark to Market accounting rules, you, and all your neighbors too, would now be forced to claim that the house you live in was now only worth $150,000 and not the $200,000 everyone knows to be the true market value.

Let’s take a look at how this would apply to a bank.

Allow me to present some more hypotheticals.

Let’s pretend you have decided to begin a new bank, let’s call it YOUR BANK. You begin with a $2 million initial investment to get Your Bank going. Your plan to make money as a bank is to take in other people’s money as deposits, paying them a low but safe rate of return, and then use the money to create loans, such as Baltimore home loans, that pay you a a higher rate than you are paying to your depositors. The difference between the two is the profit you will keep.

Now we’ll say that from our $2 million in deposits, we created $30,000,000 in loans. Our Capital Ratio (the ratio of loans to capital on hand) is at a respectable 15:1 ($15 million in loans for every $1 million in deposits). This ratio is completely acceptable by banking standards.

Let’s say that you will be running an extremely conservative bank, and the Baltimore loans Your Bank agrees to make are only of the absolute highest quality. You require a 30 percent down-payment (normal is 20%, or sometimes even less), you require a credit score of 800 (this is a VERY high credit score), you require full documentation on all income and assets and only allow a debt to income ratio of ten percent (the industry standard is 40%).

It’s clear, Your Bank will only engage in an excellent quality Baltimore loan. And it is evident. All of your borrowers are paying on schedule, no one is unhappy and Your Bank is doing very well making a lot of money. This causes Your Bank stock to continue to climb.

Very quickly, the Baltimore real estate market begins to slow down a lot and go soft, and Baltimore home values begin to drop (however, your borrowers are still making all their payments on time, with no problem).

The problem is, with the systemic drop in home values, you are forced to re-assess your loan portfolio valuation. Now, rather than the loans being 70% of the value of the home, they are at 90% (your equity position in the home went down a lot). This makes these loans considerably riskier than back when you had more equity, and because they are higher risk investments, investors are less interested in buying them than before and therefore they now have less value.

Now comes your accounting team to let you know that, according to the law, you must “Mark to Market” if you don’t want to risk a serious penalty (such as jail time!) In their Mark to Market analysis, the estimated value is now at $1 million; it has been reduced by 50%!

Let’s remember now, nothing has changed regarding your borrowers or your loans (they all continue to pay on time so the funds are still coming in just like it always has). Now however you now have to reflect the fact that your ‘value’ has been cut by 50% to only $1 million.

The problem is, you still have $30,000,000 of loans outstanding, so with a valuation of $1 million, the capital ratio now stands at 30:1 which is a LOT different than 15:1.

Alarm sirens start going off all over the place because it’s possible that with just a handful of loans that go bad that you would have to cover, you might quickly run out of cash. This could put depositorsin danger of losing their money.

Now you have a situation where the FDIC starts looking into Your Bank and next the SEC (Securities and Exchange Commission) starts asking all kinds of questions. Your Bank stock begins to to fall. Every one of the financial news networks catch wind of the situation and just add fuel to the fire.

Your Bank is in deep trouble.

The thing is, Your Bank is ‘over leveraged’, and to compensate for that you have to begin selling off some of your assets. (You could try raising capital, but considering the way the situation looks and your capital ratios totally out of balance, no one in their right mind is going to be willing to extend you the million dollars you need).

Since you need to get that money as soon as possible, you find yourself in a similar situation to that of your neighbor who needed to ‘dump’ his house very quickly at a below market price. As you sell your assets to raise capital quickly, at the same time you are reducing the value (i.e. quantity) of your remaining assets, further skewing your capital ratios.

This is a kind of death spiral that is very challenging to stop once it begins. The thing is, the problem doesn’t stop with just Your Bank.

Now let’s say that my Baltimore mortgage company (le’s call it “My Bank”) purchased those assets from you. You were unloading them at such a discount that My Bank got the feeling we were getting such a fantastic deal that we could not resist, so we bought a whole lot of them.

The trouble is, with the Mark to Market rules, the loans My Bank just bought from Your Bank at such a good price must be used as comparables that all other financial institutions also use to value their assets. So every $200,000 Baltimore mortgage loan that My Bank held (not only the ones I got from Your Bank) now only are worth $150,000 each despite the fact that they were loans that were performing perfectly.

Now we have a situation where the value of My Bank also goes down. As this occurs it disrupts My Bank’s capital ratios and forces me to sell assets as quickly as possible to generate money… and so the cycle goes on.

It is easy to see how fast and wide-spread the problem gets, despite the fact that there were not necessarily any ‘bad business decisions’ made. It is all due to a well intentioned, but over-reaching, accounting law.

When you think about the scenario above, you might want to know, “Why don’t they have everyone just quit purchasing all the discounted assets from the other guys and just make the cycle stop?” This is a very fair question.

When you stop the cycle, not only will some financial institutions go under, but the whole flow of money just stops in general. This is what’s referred to as the ‘credit freeze’. With no credit flowing at all, home lending comes to a crawl, car and truck sales all but stop, jobs are lost and the whole economy goes into a recession.

We’ve been in, and gotten ourselves out of recessions before. Why don’t we do whatever we did the last time?

The minor recession of 2001 recovered relatively quickly largely because the Fed brought interest rates down and mortgage lending standards were considerably more relaxed, which ultimately led to about $3 trillion worth of cash being extracted in the form of home equity and put back into the economy.

In the world of today, mortgage loan guidelines everywhere (not just the ones Baltimore mortgage brokers are dealing with) are much more restrictive, home values are way lower (and they’ve been headed in the wrong direction for a while now). And as mentioned earlier, the truth of the matter is that there is simply not very much money flowing out there for Baltimore mortgage companies to access for either home purchase loans or for a Baltimore mortgage refinance.

However…

A bit of good news for a change!

04/02/09 – Today the Financial Accounting Standards Board (FASB) voted favorably regarding relaxing the Mark to Market standard. They will let financial institutions to use alternatives such as cash-flow analysis in valuing assets. This change is going to significantly reduce the write downs banks have needed to take on assets and investments such as mortgages. This could very well mean more funds will soon be available to your local Baltimore mortgage companies. We’ll hope so.

Shop for the lowest Baltimore mortgage rates.

When it comes to getting a Baltimore home loan, finding the lowest Baltimore mortgage rate is critical. Some may say that it is actually the most significant part of deciding on a Baltimore loan officer. Don’t stop investigating around with just two or 3 lenders; get as many quotes as you can. Don’t forget, the total cost does not only include the interest you will pay. When you talk to a lender for the 1st time, they will give you a GFE (Good Faith Estimate) which includes information a bout your rate as well as closing costs. You should be prepared for to spend at least $2K to $5K in closing costs and more if you are buying a million-dollar (or greater) property.

With some Baltimore mortgage banks, closing costs could be on the lower end of the spectrum, whilst with other mortgage banks, you could be paying quite a bit more. These are out of pocket charges, so you have to be prepared to pay them upfront, just like you do with your down-payment.

Be organized with your credit history that bankers can review. When picking a mortgage bank, a good tip to make sure that you find the best one is to be ready with your credit history and FICO . Most mortgage firms will have a look at this information if you’re able to get to the point at which you want pre-approval, but you’ll probably have to pay a fee to get your credit history thru them, and too many checks can basically lower your score if they are spread out over many months. You can get your own credit score for free yearly, so before you start looking for a bank, print your credit history and have a conversation with them based on that information.

Now, when you have essentially selected a bank, you’re going to pay for the official credit check, (but there’s no need to pay for that until you have picked a final lender.) In the in the meantime, generate ideas about what the costs could doubtless be using the unofficial credit score you have. Don’t get into any pre approval that has an extremely high interest rate. Some banks will try to have you choose them by pre-qualifying you at high rates. Remember, you know how much you can really afford each month. If you only have enough money for a monthly payment of $1000, getting pre-qualified for a million dollar home is just looking for problems.

The highest quality mortgage lenders in Baltimore will always have your own interests in the back of their minds. A pre approval for more house that you can afford is a danger sign that this company does not truly care about your and your fiscal situation.

Ask questions about your potential Baltimore mortgage loan.

Finding the best Baltimore mortgage company is all about asking the right questions, and the more you ask the better off you are. Do not be concerned with the answers, because it’s way better to understand now rather than in some months when you want to buy the ideal home you found and then find that there are problems. Ask your questions not just about cost, but also about what to expect it terms of turn times, trends, and reliability. of your lender.

If at all possible, chat one-on-one with the person that is going to work with you on the mortgage, rather than just speaking to a processor or receptionist. One of the best ways to ensure that you are being given the answers you want is to basically write down your all your questions beforehand. That way, before you hang up the telephone or leave the office, you can look over your all your questions and make sure that each of your questions have been answered.

Lastly, when you are looking at different Baltimore mortgage companies, don’t forget that that there are two different places to look.

Web based lenders can sometimes be a great solution. At many internet sites for example, you can look at their rates and the mortgage ratesof other mortgage lenders. However, other folks find the best option is to employ a bank in their own area. When you first start your investigation, don’t restrict yourself to only search for online firms or only offline corporations; consider all the corporations you can. Even if you aren’t comfortable with working with a company based on-line, you can still use data from these corporations for comparison purposes. The thing not to forget is to always keep shopping as much as feasible until a Baltimore mortgage company that is a proper match for your needs.

Many Baltimore home owners who purchased when interest rates were much higher are now thinking about a Baltimore refinance in order to reap the benefit of today’s lower rates. If you’re among these people, know that there are some expenses that will be involved in refinancing your home, such as a home appraisal, getting title insurance, and a mortgage origination fee, just to name a few. To figure whether these expenses will off-set with the potential cash you might save by refinancing your loan, you can use the general rule of thumb referred to as the 2 percent rule.

In plain English, this rule recommends that the percentage difference between your current rate on your mortgage and the new rate being offered should be at at a minimum two points. If you were among those those who borrowed in the ’80’s who receivedan interest rate in the double-digits (and you can get a rate now for around 5 percent), it would make a lot of sense to refinance.

Listed below are 3 good reasons why people are refinancing in Baltimore with a lower rate:

1) Lower your monthly payments - By reducing the rate of your mortgage, you will see a major difference in your mortgage payment every month. And, every small piece adds up. Some borrowers who refinance have saved thousands and thousands of dollars over the durationof their loan period. How much you will save, though, entirely depends on your specific situation. So, be certain to speak to a mortgage professional who can do the number crunching for you to determine how much you might be able to save by refinancing.

2) Changing the kind of loan you have - Some borrowers choose to refinance in Baltimore even if they won’t save much money by doing so. Consider of the many folks who got an ARM. seeing many of these folks refinancing simply to change to the fixed rate mortgage. In addition, some folks who have a balloon payment included in their mortgage are choosing to refinance when it gets closer to the date to make that big payment.

3) Extracting cash from your equity - If you’ve lived in your home for 10 years or more, you probably have a decent bit of equity due to the overall Baltimore home appreciation (even with the current dip in home values) and to the fact that you’ve been making those payments every month for quite a while. Because of this, some people select to withdraw money out when they refinance their mortgage loan in order to aide with retirement or with college expenses for the kids.

If you’re considering refinancing your Baltimore house, make certain to talk to a professional mortgage specialist - someone experienced in refinancing who can sit down with you and review your numbers and the the various options available to you. And know, that each situation is different. Your home mortgage specialist should inquire about your short term and long term benefits (or consequences) that may be unique to you and targeted towards your financial future.