First person: Refinancing to upgrade

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First person: Refinancing to upgrade
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Main Residence

Refinancing has been a critical financial vehicle for me. I've refinanced twice, and both times I saved enough to upgrade my home. Banks have been like a best friend to me; I utilize refinancing as a tool, and always to my own advantage.

First refinance

I bought my first property in 1992 when I was in my early 20s and barely making $28,000 a year. It was a condo in the foothills of the San Gabriel Mountains in Southern California. My brother, who made significantly more than me, cosigned and I qualified for a fixed-rate loan at 9 percent for financing $89,000 after down payment. This yielded a monthly payment of $720.

I refinanced to a 20-year loan fixed at 7 percent in 1997. The monthly rate came to $610; the $110 monthly savings wasn't huge, but refinancing cut down my loan by five years and positioned the property to cash flow as a rental.

A year later, my wife and I along with our first baby were ready to upgrade to a house with a large lot. I rented out my condo, which had dived in value from $129,000 to about $80,000 due to a California housing slump. I used the rent as an added income when I applied for a loan for our new house. I've continuously rented out the condo since 1998. I paid that off completely a few years ago, and today it brings in $1,600 of rental income every month.

My second refinance

Our main residence was purchased in 1998 for $182,000 after down payment with a 30-year loan at 5.5 percent. The monthly payment came to $1,030.

In 2010 I got a 20-year home equity loan at 5 percent for my main residence in the amount of $200,000. With the help of a contractor, we underwent massive renovations, including adding a new driveway, patio, two-car garage, sizable boat parking, workroom, and family room. The home equity loan added an extra $1,320 monthly payment. Despite the looming recession in California, I had greatly increased the value of my home. But I now had two payments of $1,030 and $1,320 for my main residence.

In November 2012 I refinanced the original mortgage and the home equity loan into one 15-year mortgage at a 2.625 rate. My new monthly payment is $1,935. This is $415 lower than what I was paying on the two separate loans and three years shorter. I haven't decided yet what I'll do with my savings. Las Vegas is four hours away and I might buy another rental property there; though, a slightly used Corvette would be nice, too.

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