What to do with a windfall?

Last year when I did my 2007 taxes I received a refund but I made mortgage payments for a partial year only. I wasn't sure about how 2008 would work out because it was going to be my first year of making payments for a whole year so I was conservative with my withholding. I didn't take into account how much my interest payments would reduce my income, putting me into an entirely different tax bracket. I was thinking I'd get about a thousand dollars back.

Um, oops...

My combined fed/state refund is going to be about TWELVE THOUSAND DOLLARS! (Cash from Fed, I.O.U. from State)

Holy cow! What am I going to do with all that money?!

First of all, I need to change my withholding. I am not maxed out on my 403(b) so I am going to increase my contribution at the same time. I will still be a bit conservative with my withholding; I know the argument about giving the government a free loan by overpaying, but I always use my refund to pay down debt in a big chunk and it makes me feel happy. It's one of those emotion-based financial decisions, but one I can live with.

Second of all, what to do with the money? As much as a new steam washer/dryer are calling my name I already have a serviceable set and I don't really need them. Here's the tentative plan: $10,000 on the second mortgage, $1000 to the first mortgage, and $1000 undecided. My original goal for the year was $10,000 paid to principal of my second mortgage, now I can double that amount this year. Whoopee!!