Once you’ve established that you can do a Portland 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 earlier articles we covered a couple of different approaches to what you might do with that money. In each example we used the hypothetical number of $175 in monthly savings from your new, lower rate Portland home loan. That is a decent amount of money to be sure, but probably not something to get overly excited about at first. 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. 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.

The second example showed how you could apply that savings toward the principle balance on your Portland mortgage to pay it off sooner. We used a loan amount of $225,000 at 5%. 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 for the next 18 years you’re going to add $175 to an account that already has $2000 in it (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.

Now let’s look at a different person; a 30 year old who has plans to retire when they turn 65. We’re also going to say that this account is starting off with a balance of ZERO, but it gets the $175 savings added to it each and every month. By the time you turn 65, if you had done nothing else for your retirement, this account alone 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 that the numbers above are just for illustrative purposes; your results may vary. 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 Portland home loan, but also with a financial planner and/or an accountant.

In the end though, it is worth understanding that even things that may initially appear like ’small change’ can have a big impact on your long term financial goals. Your Portland 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 Portland mortgage will be a fixed rate mortgage on a 30 year term. With this new mortgage, let’s just say that you’re now paying $175 less each month. This is a reasonable amount of money, but it’s no ‘lotto’ right? Well what are you going to do with that money?

In a previous example we talked about paying off other debts, such as 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…. 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 Portland mortgage every month to help pay down your principle faster. By doing this each month you could reduce 30 years it is scheduled to take to pay off your mortgage and again, save you a lot of money. How much? Let’s take a look.

We’ll need some specific figures to look at, so let’s set up a hypothetical scenario. Let’s say your mortgage is for $225,000 at a rate of 5% for 360 months (30 years). If you were to apply that $175 savings each and every month towards the principle balance, 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 Portland 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.

So whether you’re considering a Portland refinance or if you’re considering getting a purchase money loan, it’s worthwhile to take a moment to realize what small but regular efforts can make on the big picture of your financial situation.

The biggest thing to realize is that it doesn’t take a lot of money every month to have a significant impact on your long term situation. There are three primary considerations for how to apply your new found savings to best impact your long term financial goals.

1. Applying it to higher cost debts such as credit cards to pay them down (or better yet, pay them off completely)

2. Apply it towards paying down the principle on your mortgage

3. Invest the funds towards bigger goals down the road such as a child’s college expenses or your retirement fund

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.

To illustrate, we’re going to use the following hypothetical debts: Credit Card 1 with a $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.

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 (if you didn’t add anything to the balance in the meantime). On the other hand, if you wanted to put that $175 per month towards paying these cards off in a systematic manner, this is what we would suggest:

Pay off the higher interest rate card first while still making minimum payments on the second. 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). By sticking to this plan you would be able to pay off BOTH credit cards in only a little more than four 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 a Portland mortgage can make a lot of sense for your short term needs, but it can have a massive impact on helping your long term financial picture too.

1. Start by knowing what you can afford in a Portland mortgage. The general guidelines are that you should be able to afford somewhere between two and 3 times your gross income.

2. Create a home “wish list”. After you have created your list, prioritize it.

3. Select 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. Start saving your money. Do you have enough money to both qualify for your Portland home loan and put money down for a down payment? In an ideal situation you would have 20% of the purchase price saved to use as a down payment. And don’t forget to factor in closing costs. Closing costs – including taxes, attorney’s fee, and transfer fees ? usually average somewhere around two to seven percent of the cost of the home.

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. Figure out how much of a mortgage you qualify for. How large of mortgage do you qualify for? You’ll also want to look at different 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 documentation a Portland lender will need to preapprove you for a loan. 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. Weigh other sources of help with a down payment. For example, you might qualify for certain special mortgage programs or down-payment assistance programs. Ask your lender about state and/or local government resources that might have more information about programs like these. 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 costs of Portland homeownership. This should include property taxes, insurance, maintenance and utilities, and association fees, if applicable.

10. Find a good Portland Realtor. Some first time buyers opt to try to do the deal alone rather than getting an agent. Why bother? An agent is there to represent you and make sure you get a 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 an affect on the housing market in general, and more importantly, how might it directly affect your Portland home mortgage?

We’re going to attempt to give an overview of it below hopefully so you’ll better understand it, and more significantly, understand how it has played such a major role in our existing economic crisis, including the Portland mortgage market. It may come as a surprise to discover that this accounting rule (i.e. law) has significantly more to do with the current economic down turn than perhaps anything else.

Before we even begin to look at how Portland mortgage rates get affected, we’re first going to discuss why Mark to Market exists in the first place

To fully understand Congress’ inspiration behind making this accounting rule, we have to look back at the stock market crash that happened in 2000 to 2002.

At the time, before this rule was devised, companies such as Enron and Arthur Anderson figured out ways of ‘cooking their books’ in order to make the balance sheets look a lot healthier than they really were. This, in turn, caused their stock values to be falsely inflated,playing into the creation of the ‘bubble’ that, as we all know all too well eventually burst. When that occurred, a lot of people lost tons of money. To suggest 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 significantly more transparent and to be sure of fair valuation of companies and their assets. Basically, what it means is that all assets have to be valued just as if they were sold on a daily basis. For those who decided not to do this conservatively, they put themselves at risk for potential jail time.

Let’s now have a look at how this concept can be a problem affecting the whole economy, including Portland mortgages.

When you consider the huge amounts of money handled by banks – not to mention the wide (and odd) variations of financial instruments they use, – it can be difficult to try to get one’s mind around exactly what they do. It will be more effective to illustrate how this accounting strategy works using an analogy more approachable to the rest of us.

Let us say you live in a neighborhood and all the homes are worth right about $200,000. Let’s also say that your neighbor owns his house free and clear.

All of a sudden you neighbor has some serious, major medical expenses and has to sell his home to pay forit. What he needs is money now and does not have the time for a Portland refinance, and he is in no position to wait for the best price he can get. Instead of waiting, he sells the house for $150,000 to get rid of it fast, even though it is clear that the house is worth quite a bit more than that.

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

However, if you were a publicly traded company and it was mandated by law to comply with the Mark to Market accounting rules, you, as well as all your neighbors, would now be forced to claim that your home was only worth $150,000 and not the $200,000 everyone recognizes to be the actual market value.

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

Allow me to present some more hypotheticals.

We’re going to pretend you decided to open a new bank, let’s call it YOUR BANK. You start with a $2 million initial investment to get Your Bank going. Your strategy to make money as a bank is to take in other people’s money as deposits, you will pay them a safe but low return on that money, and then use the funds to create other loans, such as Portland home loans, that pay you a higher rate of return. The difference between the two is your profit that you get to keep.

Let’s say that from our $2 million of deposits, we create $30,000,000 worth 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 imagine that you run your bank by extremely conservative standards, and the Portland loans Your Bank agrees to make are only those of the utmost quality. For instance, you require a 30% down-payment (normal is 20%, or sometimes even less), you require a credit score of 800 (this would be an extremely high credit score), you demand full documentation of all income and assets and only allow a debt to income ratio of 10 percent (40% is the industry norm).

It is exceedingly clear, Your Bank will only make the highest quality Portland loan. And it’s evident. All your borrowers pay on schedule, no one is unhappy and Your Bank is making money. This causes Your Bank stock to continue to climb.

All of a sudden, the Portland real estate market begins to slow down and go soft, and Portland home values begin to drop (however, your borrowers continue to make all their payments on time, no problem).

The problem is, with the industry wide reduction in home values, you have 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 just went down considerably). This means these loans are considerably riskier than back when you had more equity, and since they are riskier investments, people are less interested in buying them than they were before and therefore they now have less value.

Your accounting team now tells you 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 the Mark to Market analysis, the estimated value is now at $1 million; it has been reduced by half!

Do not forget, not a thing has changed concerning your borrowers or your loans (they all still pay on time so the funds are still coming in just as it always has). The difference now however, is that you now need to reflect the fact that Your Bank’s ‘value’ has been cut by 50% to only $1 million.

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

Alarm bells start going off everywhere because with just a handful of loans that go bad that you would be forced to cover, you might quickly run out of funds. This could put depositors at risk of losing their money.

So all of a sudden the FDIC is starting to look into Your Bank and then the SEC (Securities and Exchange Commission) is asking all kinds of questions. Your Bank stock price begins to to tumble. Every one of the financial news networks get a hold of the situation and just pour fuel on the fire.

Your Bank is in deep trouble.

The thing is, Your Bank is ‘over leveraged’, and to counteract for that you are going to have to begin selling some of your assets. (As an alternative, you could try raising some capital, but considering the way things look and your capital ratios totally out of balance, no one in their right mind is going to be willing to lend 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 home extremely quickly at a below market price. As you sell off as many assets as possible to raise capital as fast as possible, at the same time you are minimizing the value (i.e. quantity) of your remaining assets, further skewing your capital ratios even further.

This is a kind of death spiral that is very hard to stop once it starts. The thing is, the problem does not end with just Your Bank.

Now let’s say that my Portland mortgage company (we will call it “My Bank”) bought those assets from you. You were offering them at such a great price that My Bank felt we were getting such a fantastic deal that we couldn’t resist, so we bought a whole lot of them.

The trouble is, with the Mark to Market rules, the assets My Bank just acquired from Your Bank at such a discounted price must be used as comparables that all other financial institutions also use to value their assets. So now every $200,000 Portland mortgage loan that My Bank was holding (not limited to just the ones I got from Your Bank) now only have a value of $150,000 each regardless of the fact that they were perfectly good performing loans.

So now we have a situation where the value of My Bank also goes down. As this happens it disrupts My Bank’s capital ratios and causes me to sell assets as quickly as possible in order to generate funds… and so the cycle goes on and on.

It’s not hard to see how quickly and wide spread the problem becomes, regardless of the fact that there wasn’t necessarily any ‘bad business decisions’ that were made. It’s all caused by a well intentioned, but over-reaching, accounting law.

If you think about the situation described above, you might ask yourself, “Why don’t they have everyone just stop purchasing the discounted assets from the other banks and stop the cycle?” This is a very fair question.

When the cycle is stopped, not only will some financial institutions fold, but the flow of money just stops. This is what’s referred to as the ‘credit freeze’. With no credit available, mortgage loan originations come to a crawl, car and truck sales basically stop, people lose 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 the same thing we did during the last recession of 2001?

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

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

However…

Some good news for a change!

4/2/2009 – Today the Financial Accounting Standards Board (FASB) voted favorably in regards to relaxing the Mark to Market standard. They are going to allow financial institutions to use alternatives such as cash-flow analysis to value 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 Portland mortgage companies. We’ll hope so.

Over the past thirty years, Portland mortgage rates have gone up and down significantly in a financial tide of mortgage offerings. In the early ‘80s for example, interest rates for regular 30 yr., fixed rate mortgages were in the neighborhood 18%. In today’s market, though, we are seeing mortgage interest rates for the identical type of mortgage loan around 5% – and even sometimes, in the 4% range.

Numerous Portland home owners who bought when interest rates were much higher are now looking at refinancing so as to reap the benefit of the lower Portland mortgage rate available today. If you’re one of these people, know that there are some costs involved in refinancing your mortgage, such as a home appraisal, getting title insurance, and a mortgage origination fee, just to name some. To calculate if these costs will off set with the possible money you may be able to save by refinancing your mortgage, you can use the basic rule of thumb known as the 2 percent rule.

In normal language, this rule recommends that the percentage difference between the current rate you have on your mortgage and the new interest rate being offered should be at at a minimum two points. If you were amongst those those who borrowed in the 80s who received an interest rate in the double digits (and now you can secure a rate in the neighborhood of 5%), your Portland refinance would make pretty good sense.

Listed below are three advantages why people are refinancing in Portland:

1) Make your monthly payments lower – By lowering your Portland mortgage rate, you will see a dramatic difference in your mortgage payment every month. And, every small bit helps. Some people who refinance can save $1,000’s of dollars over the course of their loan period. How much you save, though, completely depends on your specific numbers. So, make sure to talk to a Portland mortgage specialist who is able to do the number crunching for you to determine how much you might be able to save by refinancing.

2) Changing the variety of loan you have – Some people decide to refinance even though they won’t save much money by doing so. Consider of the large number of folks who got an (Adjustable Rate Mortgage (ARM). We see many of these folks refinancing in Portland just to change to the fixed rate mortgage. In addition, some folks who have a balloon payment included in their loan are deciding to refinance as it gets closer to the date to make that balloon payment.

3) Getting money from your equity – If you have been in your home for 10 years or more, you probably have a decent bit of equity coming from overall Portland home appreciation (even with the existing reduction in home values) and to the fact that you have been making those monthly mortgage payments for quite a while. Because of this, some homeowners choose to extract cash out when they refinance their loan so as to help with things such as retirement or with college expenses for the kids.

If you’re thinking about refinancing your Portland home mortgage, be certain to talk to a seasoned loan officer – someone with a lot of experience specifically in Portland refinancing who can sit with you and review your situation and your numbers and the the various options you have. And know, that each situation is unique. Your home mortgage specialist should ask you about short-term and long term goals that may be specific to your situation and target your approach to best matchyour financial future.

Regardless of your goals, with today’s interest rates you absolutely should have a closer look to decide if a Portland refinance makes good financial sense for you.

No matter whether you are purchasing your first Portland home or are an experienced homeowner, you may likely need a mortgage to make such a huge purchase. Regardless of where you live in the area, there’ll be multiple Portland mortgage lenders who you could use to make purchasing your place possible. How are you able to choose the best Portland mortgage broker for your budget? Here are some tips for doing exactly that:

Shop for the best Portland mortgage rates.

When it comes to Portland home loans, finding the best Portland mortgage rate is critical. Some may claim that it is essentially the most significant part of deciding on a mortgage company. Don’t stop window shopping with just two or 3 quotes; get as many quotes as you can. Don’t forget, the total cost doesn’t only mean the interest you will pay. When you talk to a loan officer for the first time, they should give you a good faith estimate which includes interest rate information 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 purchasing a million-dollar (or more expensive) house.

With some Portland mortgage companies closing costs may be on the low end, while with other mortgage lenders, you could be paying a lot more. These are out of pocket fees, so you should be ready to pay for them them upfront, just like you do with your down-payment.

Be prepared with your credit score that banks can review. When picking a mortgage lender, a good tip to make sure that you find the highest qualtiy one is to be ready with your credit history and FICO . Most mortgage firms will review this information if you can get to the point at which you want pre-approval, but you’ll likely have to pay a fee to get your credit report through them, and too many checks can essentially lower your score if they are spread out over a number of 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 score and discuss with them based on the information.

Now, when you actually chose a bank, you’re 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 lender.) In the meanwhile, get ideas about what the expenses could possibly be using the unofficial credit score you have. Avoid any pre-approval that has a very high interest rate. Some banks will attempt to try to get you to select them by pre-qualifying you at high rates. Remember, you know how much you can really afford every month. If you only have enough money for a monthly payment of $1000, getting pre-qualified for a $1,000,000 home is just asking for trouble.

The best mortgage banks in Portland will always have your best interests in  mind. Pre-approving you for more house that you can afford is a red flag this company does not truly care about your and your finance situation.

Ask questions about your potential Portland mortgage loan.

Searching for a Portland mortgage bank is all about asking good questions, and the more you ask the better. Don’t be nervouse about the answers, because it’s way better to understand now rather than in a few months when you want to buy the ideal home you found and only then realize 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 it is possible, talk one-on-one with the person that is going to work with you on the loan, instead of just talking to a processor or receptionist. One of the best methods to ensure that you are being given the answers you want is to basically write down your all your questions beforehand. In doing this, before you hang up the phone or leave the office, you can look over your list of questions and be confident that all your queries have been answered.

Finally, when you are looking for Portland mortgage brokers, don’t forget that that there are two different places to look.

Web based mortgage companies can sometimes be a great option. At plenty of on-line sites for example, you can look at their rates and the intereset ratesof other firms. However, other folks find that the best option is to use a bank in their own local area. When you first begin your search, don’t restrict yourself to just search for online firms or only offline firms; look at all the companies you can. For instance, if you aren’t happy with working with a company based on line, you can still use resources such as rates from these firms for comparison purposes.

The thing not to forget is to simply keep shopping as much as possible until you find you find a Portland home mortgage company that is a proper match for your personal needs.