Serial Refinancer Might Have Had Loan Paid Off by Now

Q: Back in 1996 I built and financed my house for $125,000 with a 30-year, fixed-rate mortgage at 9.5 percent. I refinanced in 1997 at 8 percent and then again in 1999 at 6 percent. The goal, of course, was to reduce my monthly payment along with the implied reduced interest amount that would have been paid had I not refinanced.

So here we are in 2009, with interest rates at around 4.5 percent and again I am refinancing. The impetus is my impending retirement in two to four years. My goal is to have the fewest and lowest retirement costs possible.

Since I am 63 years old, statistically, what are the chances of me paying off my new 30-year mortgage before I die? Most insurance companies are fairly certain that I will die by age 83 to 85. Of course, I could die in the next hour or live to be 105, but statistically I'm certain to be gone in 30 years. That's 10 years longer than my life expectancy.

So I have decided to no longer add money for an additional principal payment to my regular monthly payment because my mortgage will outlive me and I will have that money for my retirement uses.

Do you think I have made an error in judgment?

A: I wish I knew for sure when you are going to die. While insurance companies are betting that you'll be gone in 20 years or so, one of the fastest-growing populations in this country is the 100-years-young crowd.

If you had been refinancing the balance only every time you refinanced your mortgage but still paid the same monthly payment you were paying in 1996, when your interest rate was over 9 percent, I'm guessing that you would have paid off your mortgage balance already or you might be getting pretty close by now.

But like so many folks, it seems as though you started fresh every time you refinanced, which meant another 30-year term. While that lowered your monthly payment, it didn't do much for slicing years off the loan.

As I've often said, to refinance successfully, you should be able to do these three things: lower the interest rate, lower your monthly payment and shorten the loan term. If you only get two out of the three, choose the shorter loan term and lower interest rate -- you'll be better off down the road.

You're now down the road and trying to decide whether you should prepay this loan or keep the extra cash to live on. In this economy, cash is king. It's not that easy to get a home-equity line of credit these days, so I think you should keep the cash.

But I wish you had written me back in 1997. I would have told you to refinance to a 15-year term, and keep prepaying through every subsequent refinance. By now, you'd be mortgage-free for your retirement years and the entire amount you are now paying to your lender could be used for other retirement expenses.

Q: My husband and I bought our first home together in 2002. In 2006, we sold this home and bought another one. This year, we refinanced it. When we refinanced, the new mortgage was solely in my name (it was previously in both names). Would I qualify for the first-time home buyer tax credit since I have never had a mortgage solely in my name before?