First person: Refinancing to boost college savings and prepare for retirement

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First person: Refinancing to boost college savings and prepare for retirement
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Our house

Even with mortgage rates at historic lows in 2012, we weren't sure if we should refinance our house. We had purchased it just two years ago in 2010 at a rate of 4.86 percent. Our monthly mortgage payment of $685 was manageable -- much less than if we were paying rent somewhere. Why mess with a good thing and deal with the paperwork? Then we crunched some numbers. If we could shave 1 percent off our interest rate we could save about $90 a month.

I started by calling a mortgage banker to find out what kind of rate we might get. He told me rates were around 3.75 percent (1.11 percent lower than our current rate) and all he needed to approve our refinance application was updated proof of income, bank statements for two months, and a recent house appraisal.

Once our application was approved, our mortgage banker quoted us a rate of 3.65 percent. But, having watched the trending decline in rates, I told him we wanted to wait and lock in a rate of 3.5 percent or less. He said he couldn't go that low. I told him we were in no hurry and would wait. Two days later in March 2012 we got the telephone call -- he had locked in an interest rate of 3.5 percent for 30 years on our $126,745 mortgage balance. Our monthly housing expense has gone down from $685 to $569 a month with the refinanced mortgage payment. With the savings of $116 each month we will recoup the total mortgage refinance settlement charges in just over four years. When we signed the paperwork the escrow officer was almost giddy -- she told us she had never worked a loan with such a low interest rate in her 20 years in the business.

The requirement for a new house appraisal netted us a nice bonus in the form of lower property taxes. While the appraisal showed our house had decreased in value, we believe it is only temporary due to the economy. Another reason we weren't too worried about the lower appraised value is our location. Wimberley, Texas, is a tourist destination and a desired place to live; our home will hold its value regardless of what an appraisal indicates. So we focused on the upside -- armed with the new appraisal, our county tax assessor's office was persuaded to lower our property taxes saving us $315 each year. We divided the $315 property tax savings and deposited it into the section 529 college plans we have set up for our children's education.

Our annual savings from refinancing our home comes to $1,710. That's the $315 saved on property taxes plus 12 months of the $116 we save with the lower mortgage payment. With three children lined up like airplanes on a runway, one taking off for college after the other, every little bit helps. We have the monthly mortgage savings of $116 automatically transferred to the college funds at the beginning of every month so we never miss it.

Refinancing was the right decision for us. Even though we are only in our 40s, we plan to retire in this home. We didn't think rates for a 30-year mortgage would go much lower and wanted to lock in the lowest rate and lowest payment possible since we will carry this mortgage into our retirement years. The hardest part was holding firm on the rate and enduring a bit of suspense as we waited those two days for our mortgage banker to get us the rate we wanted.

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