After you’ve figured out that it makes sense for you to refinance of your existing Dallas home loan, the next thing you might want to consider is what to do with the money you’ll be saving. That may sound like a silly question, but trust me, if you’re not careful it is very easy for that extra money to just ‘evaporate’ at the end of each month and not really have much impact on your situation.

In previous articles two different suggestions were made for what someone might want to do with their new found savings. In each situation we used the same hypothetical savings of $175 per month from your new refinanced Dallas home loan. While that much money is nothing to sneeze at, it’s probably not going to get many people overly excited either. However, we showed how a bit of discipline could turn that modest amount of money into some serious benefits.

In our first example applied the money to pay off existing credit card debts. As an example we used 2 cards with balances of $4000 and $8000 and interest rates of 16% and 12% respectively. We applied the extra $175 to the minimum required payment to show that we could pay them off in about 4 years as opposed to the twenty-three years it would take paying just over minimum monthly payments.

In example number 2 we took the savings and applied it towards the principle on your Dallas mortgage to help pay it off more quickly. Our example was of a loan amount of $225,000 at 5% fixed. By applying our extra cash to the principle each month, we reduced the time to pay off the mortgage by over 7 years. That equal over $58,000 in interest you wouldn’t be paying.

The last option we will talk about is putting that money to work by investing it. The investment goals could be anything from your retirement to a vacation to a child or grand child’s college expenses. Your investment motivations are completely your own; we simply want to show you what could be accomplished with this money.

We’ll need to use some ‘guesstimates’ in this calculation, but we’ll use conservative numbers to be on the safe side.

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.

So what does baby have waiting when they turn 18? A bit over $83,000! That’s a pretty good start for college, I would say.

Let’s say that instead of college for a child, you’re a 30 year old looking to retire at age 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. Once again, this is a pretty impressive sum considering we’re using conservative numbers.

You need to remember of course that these figures are all hypothetical. However, if they whet your appetite at all, you should definitely consider sitting down with not only a professional mortgage advisor to see about refinancing your Dallas home loan, but also with a financial planner and/or an accountant.

The main point that we hope you get here is that while some savings may appear to be rather insignificant at first, if you apply yourself properly, you can have a dramatic positive effect on your long term financial well being. Your Dallas home mortgage is more than a bill; it should be part of your overall financial plan.

Let’s run some numbers based on an assumption that your new Dallas 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?

One option that we discussed in a previous example was paying off other debts, such as those on existing credit cards. As a reminder, in that example we said there were two cards, one with an $8,000 balance at 12% and the other at $4,000 balance at 16%. 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…. On the other hand, if you were to use your monthly savings to pay those debts, you could reduce the total pay-back period from 23 years to about 4 years, saving you a LOT of money.

A second option for your savings could be to apply them to your existing Dallas mortgage every month to help pay down your principle faster. By doing so, you could shorten the length of time it takes to pay it off and save you a whole lot of money. How much? Let’s take a look at some numbers.

We need some specific numbers to work with, so let’s go with the following scenario. Let’s say you have a fixed rate of 5% on a 30 year mortgage for $225,000. Now let’s imagine that you applied that $175 every month towards the principle on the loan (above and beyond your regularly scheduled mortgage payment), 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 kind of money is something to get excited and motivated by!

So, the idea of refinancing to a lower rate is very appealing for many people. However, the thing that often gets overlooked is how significant a difference a small change in your Dallas mortgage rates can have on your long term net worth. As we’ve all seen in the current economic situation we find ourselves in, a bit of us.

No matter whether you’re looking at a Dallas refinance or you’re looking to make a purchase, it’s worthwhile to take a moment to realize what small but regular efforts can make on the big picture of your financial situation.

It does not take a whole lot of money every month to be able to impact your financial future in a very positive way. 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. Put it towards paying down the principle faster on your remaining mortgage

3. Investing the savings to address future goals such as college tuition or retirement

If you do have other debts (like most people) such as several credit cards or maybe a car loan, it is important for you to compare the costs (i.e. interest rates), balances and mandatory minimum payments to one another. Making the assumption that you can currently make the minimum payment, you should organize and prioritize these debts by the most expensive first (highest interest rate, not highest balance), and then start applying the extra money towards that to pay it off as soon as possible.

Let’s say that you have balances on 3 credit accounts as follows: First Credit Card with $4,000 balance at 16%, Creditcard #3 carries a balance of $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.

If you were making just above the minimum payments on your 2 credit cards, it would take you 23 years to pay them off (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 apply that $175 towards your credit card balances, this is the suggested approach:

Pay off the higher interest rate card first while still making minimum payments on the second. When that is gone, apply both the $175 and the minimum payment you were making to the first card to the second. 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! Consider how much money you’ll be saving in interest payments over those 19 years…

So as you see, refinancing can make a lot of sense for your short term needs, but can also impact your long term financial goals as well.

1. Start by knowing what you can afford in a Dallas mortgage. The general rule of thumb is that you can afford between 2 and 3 times your gross income.

2. Create your home wish list. Once you have everything you want, prioritize them.

3. Figure our where you want to live. put together a list of 3 or 4 neighborhoods you would be happy living 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. It’s never too early to start saving. Do you have enough money to both qualify for your Dallas home loan and put money down for a down payment? Ideally, you should have 20 percent of the purchase price saved as a down payment. And don’t forget to factor in closing costs. Your closing cost, which include taxes, title/attorney’s fees, transfer/recording fees etc ? typically cost between 2% and 7% of the home price.

5. Be sure your credit is 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. Your credit report is your history of all your credit, bad debts, late payments and delinquencies.

6. Determine your mortgage qualifications. How much money do you qualify for? You will also want to have a look at a variety of loan options ? for example 30-year or 15 year fixed or Adjustable Rate Mortgages ? and decide which is better for you.

7. Get pre-approved. Organize all the paper work you’ll need for your Dallas mortgage lender to be able to give you a loan pre-approval. You might need W-2 forms, copies of at least one pay stub, account numbers, and copies of two to four months of bank or credit union statements.

8. Check to see if there are other sources that might be able to help you with your down payment. Do you qualify for any special mortgage or down payment assistance programs? It would be worthwhile to check with your local government and/or state agencies to see about these kinds of programs. 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. Figure out the total cost of Dallas homeownership. This total cost included property taxes, insurance, utilities, association fees and maintenance.

10. Find a good Dallas 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 don’t forget, as a buyer you’re not going to have to pay to have that agent work with you.

What exactly is Mark to Market and what does it mean? Is this going to have any affect on the general housing market, and more importantly, how might it directly affect your Dallas home mortgage?

We’re going to try to give an explanation of it below so you can better understand what it is, and more significantly, understand how it has played such a important role in our existing economic crisis, which includes the Dallas mortgage market. It may come as a surprise to you to discover that this accounting stipulation (i.e. law) has significantly more to do with the economic crisis than probably anything else.

Before we even look at how Dallas mortgage rates are affected, let us first discuss why Mark to Market exists at all

To grasp Congress’ motivation behind creating this accounting regulation, we need to go back and look at the stock market crash of 2000 – 2002.

At that time, before this rule was created, companies such as Arthur Anderson, Enron and others figured out ways of ‘cooking their books’ in order to make the balance sheets seem significantly healthier than they truly were. This, in turn, assisted their stock values to be falsely high, contributing to the ‘bubble’ that, as we all know, eventually popped. When that occurred,many, many people lost all kinds of money. To suggest they were unhappy is more than an understatement. Something neededto be done.

The idea of “Mark to Market” accounting was created in an attempt to make things significantly more transparent and to be sure of fair valuation of companies and their assets. Basically, what it means is that all assets must be valued as if they were 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 take a look at how this rule can create a problem affecting the whole economy, including Dallas mortgages.

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

Let us say you live in a neighborhood and all the houses are worth 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 needs to sell his house in order to pay for them. He needs his money right now and does not have the luxury to shop for a Dallas refinance, and he isn’t in any position to wait for the best offer he can get. So rather than wait, he sells his house for $150,000 to get rid of it fast, even though it’s obvious that the house is worth considerably more than that.

If you so happened to live across the street in an identical house, does the fact that your neighbor’s house sold for $150,000 mean your property just lost 25 percent of its value? No, of course that’s not accurate. If you decided to sell your house, you would take the time needed and get the fair market price for it; you wouldn’t be forced into a “fire sale” situation.

However, if you were a publicly traded company and were required by law to go by the Mark to Market accounting rules, you, and all of your neighbors as well, would now have to claim that your home was now only worth $150,000 instead of the $200,000 everyone knows to be the true value.

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

Let’s continue with the ‘make believe’ to further the explanation.

We’re going to pretend you decided to begin a brand new bank, called YOUR BANK. You get started with a $2 million initial purse to get Your Bank going. Your strategy to make money as a bank is to take in the public’s money as deposits, paying them a low but safe rate of return, and then using the money to create loans, such as Dallas home loans, that pay you a higher rate of return. The difference between the two is the profit you keep.

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

We’re going to say that you run an extremely conservative bank, and the Dallas loans Your Bank agrees to make are only of the absolute highest quality. For example, you require a 30 percent down-payment (normal is 20%, or sometimes even less), a credit score over 800 (this would be an extremely high credit score), you require full documentation of all income and assets and only allow a DTI(debt-to-income) ratio of 10 percent (40% is the industry norm).

It’s abundantly clear, Your Bank will only make an excellent quality Dallas loan. And it is evident. All your borrowers are paying on schedule, no one is unhappy and Your Bank is making plenty of money. This causes Your Bank stock to continue to climb.

Very quickly, the Dallas real estate market starts to slow down a lot and go soft, and Dallas home values start dropping (but your borrowers continue to make all their payments on time, with no problem).

The problem is, with the systemic drop in home values, you have to re-assess your loan portfolio value. Now, the loans aren’t 70% of the value of the home, they are now at 90% (your equity position in the home just went down a lot). This means these loans are significantly riskier than back when you had a lot more equity, and since they are higher risk investments, people are less interested in buying them than before and therefore they have less value.

Now comes your accounting team to let you know that, according to law, you need to “Mark to Market” if you do not want to risk a serious penalty (such as jail time!) In the Mark to Market analysis, it is estimated that Your Bank is now at $1,000,000; it has been cut by 50%!

Don’t forget, not a thing has changed regarding your borrowers or your loans (they all still pay on time so the funds are still coming in just like it always has). Now however you now must reflect the fact that the ‘value’ of Your Bank has been cut by 50% to only $1,000,000.

Here’s the thing; you still have $30,000,000 in loans outstanding, and with a valuation of only $1,000,000, your capital ratio is now at at 30:1 which is a LOT different than 15:1.

Alarm bells start going off everywhere because it’s a concern that with just a handful of bad loans that you would have to cover, you might quickly run out of funds. This would place depositors at risk of losing their deposits.

So now suddenly the FDIC starts looking into Your Bank and after that the SEC (Securities and Exchange Commission) is asking all kinds of questions. Your Bank stock price begins to to fall. Every one of the financial news networks hear of the situation and just add fuel to the fire.

Your Bank is in some serious trouble.

The problem is, Your Bank is ‘over leveraged’, and to counteract for that you will be forced to start selling off some assets. (Another option could be to try to raise some capital, but considering the way the situation looks and your capital ratios totally out of whack, no one is going to be willing to lend you the $1,000,000 you need).

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

This is a kind of death spiral that is nearly impossible to stop once it begins. The other issue is, the problem does not stop with just Your Bank.

Let’s now imagine that my Dallas mortgage company (we will call it “My Bank”) bought those assets from you. You were unloading them at such a low price that My Bank felt like we were receiving such a excellent deal that we couldn’t help ourselves, so we bought a whole lot of them.

The trouble is, with the Mark to Market regulations, the loans My Bank just purchased from Your Bank at such a good price need to be used as comparables that all the other financial institutions also use in order to value their assets. So now each $200,000 Dallas mortgage loan that My Bank is holding (not only the ones I bought from Your Bank) now only have a value of $150,000 each despite the fact that they were perfectly good performing loans.

So now we have a situation where the value of My Bank also goes down. This, in turn, skews My Bank’s capital ratios and forces me to sell assets fast in order to generate funds… and so the cycle goes on.

It’s easy to see how fast and wide-spread the problem gets, despite the fact that there wasn’t necessarily any ‘bad business decisions’ that were made. It’s all due to good intentioned, but over reaching, accounting rule.

When considering the scenario above, you might ask, “Why don’t they have everyone just stop buying the discounted assets from the other guys and just make the cycle stop?” This is a very fair question.

If the cycle is stopped, not only will some financial institutions go under, but the whole flow of money in general just stops. This is what is referred to as the ‘credit freeze’. When there is no credit available at all, mortgage loan originations come to a crawl, car and truck sales basically stop, people are laid off their jobs and the whole economy goes into a recession.

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

The minor recession of 2001 recovered pretty quickly because the Fed lowered interest rates and mortgage lending standards were more relaxed, which led to nearly $3 trillion worth of funds being extracted in the form of home equity and put back into the economy.

Today, mortgage guidelines everywhere (not just the ones Dallas mortgage brokers are dealing with) are considerably more restrictive, home values are much lower (and they have been heading in the wrong direction for a while). And as was mentioned earlier, the sad truth is that there is just not very much money flowing out there for Dallas mortgage companies to access for either home purchase loans or for a Dallas mortgage refinance.

However…

How about some good news for a change!

April 2, 2009 – Today the Financial Accounting Standards Board (FASB) voted favorably in regards to relaxing the Mark to Market standard. They have decided to allow financial institutions to use alternatives such as cash-flow analysis in valuing assets. This change will significantly reduce the write-downs banks have needed to take on assets and investments like mortgages. This could very well mean more liquidity will soon be available to your local Dallas mortgage companies. We certainly hope so.

Whether you’re a Dallas first time home buyer or are a seasoned home-owner, you’ll likely need a mortgage to make such a massive purchase. Regardless of where you live in the area, there will be multiple Dallas mortgage lenders who you may use to make purchasing your place possible. How can you choose the best Dallas loan officer for your budget? Here are some tips for doing just that:

Window shop for the best Dallas mortgage rates.

When it comes to Dallas home loans, finding the best Dallas mortgage rate is important. Some may even claim that it is essentially the most vital part of selecting a mortgage company. Don’t stop digging with just 2 or three companies; get as many rates as you can. Remember, your complete cost doesn’t only mean the interest rate you’ll be paying. When you talk to a loan officer for the first time, they are going to give you a GFE (Good Faith Estimate) which includes information a bout your rate as well as your total closing costs. You can expect to spend at least $2000 to $5000 in closing costs and more if you are purchasing a million-dollar (or greater) house.

With some Dallas mortgage banks, closing costs may be relatively low, whilst with other Dallas mortgage brokers, you may be paying a load more. These are out of pocket costs, so you should be ready to pay for them them upfront, just like you do with your down-payment.

Be ready with your credit report that banks can review. When selecting a mortgage lender, a very good tip to ensure that you find the most qualified one is to be ready with your credit score. Most mortgage corporations will look over this information if you can get to the point where you would like pre-approval, but you’ll probably have to pay a fee to get your credit score thru them, and too many checks can essentially lower your score if they are spread out over many months. You can take a look at your own credit history free once a year, so before you start looking for a lender, print your credit report and discuss with them based on what you find.

Now, when it comes time to select your final lender, you are going to need to pay for the official credit check, (but there is no necessity to pay for that until you have selected a final bank.mortgage company.) In the meanwhile, get ideas about what the expenses could possibly be using the unofficial (but accurate) credit score you have.  Avoid any pre-approval that has a very high interest rate. Some banks will attempt to encourage people to choose them by pre-qualifying you at high interest rates. Do not forget, only you know how much you are able to truly afford every month. When you only have enough income for a once per month payment of $1000, getting pre-qualified for a million-dollar home is just asking for trouble.

The best mortgage banks in Dallas will always keep your best interests in the back of their minds. A pre-approval for a higher amount than you can afford is a red flag this company does not really care about your and your finance situation.

Ask questions about your potential Dallas mortgage loan.

Finding the right Dallas mortgage bank is all about asking good questions, and the more you ask the better off you are. Don’t be worried about the answers, because it’s much better to know now rather than in a few months when you would like to buy the ideal home you found and only then realize there are problems. Ask questions not just about cost, but also about what to expect as far as timescale, trends, and reliability. of your lender.

If it’s possible, talk one-on-one with the person who is going to work with you on the deal, instead of just speaking to a processor or receptionist. One of the very good ways to make sure that you are receiving the answers you want is to basically write down your questions beforehand. By doing this, before you hang up the phone or head out of the office, you can look over your list and be sure that each of your questions have been answered.

Finally, when you’re looking for a Dallas mortgage bank, remember that there are 2 different places you can search.

Internet mortgage lenders can often be a great option. At several online sites, for example, you can compare their interest rates and the mortgage interest ratesof other companies. However, other people find the best option is to use a mortgage lender in their own local neighborhood. When you first begin your research, don’t limit yourself to just search for online companies or only offline companies; look at all the companies you can. For instance, if you are not comfortable with working with a company based on the web you can still use info such as rates from these sites for comparison purposes.

The thing to remember is to always keep shopping as much as possible until you find a lender that can get you a Dallas home mortgage that seems to be a proper match for your personal needs.

Over the past thirty years, Dallas mortgage interest rates have risen and fallen massively in a financial tide of mortgage offerings. Early on in the 1980’s for example, interest rates for normal 30 year, fixed rate mortgages were in the neighborhood 18 percent. Today, though, we’re seeing interest rates for the very same type of mortgage loan about five percent - and even sometimes, in the 4% range.

Numerous Dallas home owners who bought their homes when interest rates were significantly higher are now seriously thinking about a Dallas refinance so as to reap the benefit of the lower rates of today. If you’re one of these folks, know that there are some expenses involved in refinancing your mortgage, such as having your home appraised, title insurance, and a mortgage origination fee, just to name some. To calculate if these expenses will off set with the possible money you may be able to save by refinancing your loan, you can use the basic rule of thumb called the 2 percent rule.

In basic English, this rule recommends that the difference in percentage between your current rate on your mortgage and the new interest rate being offered should be at least two points. If you were among those those who borrowed in the ’80’s who receiveda mortgage with a rate in the double digits (and today you can get a rate around 5%), it would make very good sense to refinance.

Listed below are 3 advantages why people are refinancing in Dallas to a lower rate:

1) Lowering monthly payments - By reducing the interest rate of your Dallas mortgage, you will be able to see a major difference in your monthly mortgage payment. And, every little piece adds up. Some people who refinance have saved $1,000’s of dollars over the life of their loan period. How much you will personally save, though, totally relies on your specific situation. So, make certain to talk to a mortgage adviser who is qualified to do the number crunching for you to determine how much you will be able to save by refinancing.

2) Altering the kind of loan you have - Some people choose to refinance in Dallas even though they won’t save any cash by doing so. Think of the many borrowers who got an ARM (Adjustable Rate Mortgage). We are seeing many of these borrowers refinancing just to change to the fixed rate mortgage. At the same time, some borrowers who have a balloon payment worked into their loan are choosing to refinance as it gets nearer to the date to make that balloon payment.

3) Pulling money from your home equity - If you’ve been in your house for 10 or more years, there’s a better than average chance you have a significant bit of equity because of the overall Dallas home appreciation (even with the existing dip in house values) and to the fact that you’ve made those payments every month for quite a while. Because of this, some homeowners decide to withdraw value out when they refinance their mortgage loan so as to aide with such things as retirement or with their kids’ costs for college.

If you’re thinking about refinancing a Dallas mortgage, make certain to talk to a qualified home loan professional - someone experienced in refinancing who can talk to you and go over your numbers and the the various options you have. And know, that each situation is unique. Your local Dallas home mortgage specialist should ask you about short-term and long term benefits (or consequences) that are unique to you and targeted towards your personal financial future.

No matter what your goals are, with today’s rates you should absolutely have a closer look to decide if a Dallas refinance makes financial sense for you.