Francis Vayalumkal

TO REFINANCE OR NOT TO REFINANCE
By FRANCIS VAYALUMKAL

Sure, you could refinance your mortgage. But should you?

The answer depends primarily on your personal circumstances, including the interest rate and terms of your current mortgage, and how long you expect to continue to own your home.

But beyond those and other individual issues, there also are some broader considerations that might help you figure out whether to refinance or keep the current one.

Mortgage rates did fall a little bit in the recent past. And this has caused a lot of people to think about refinancing their existing mortgages. The amount of refinance applications have been going up with the rate cut news. Unlike prior refinancing booms, however, the current flurry of activity isn't just about low interest rates. Many borrowers want to replace an adjustable-rate mortgage with a less risky fixed-rate product.

Possible reasons to refinance:

Get a lower interest rate.
Replace an ARM with fixed-rate loan.
Consolidate loans to one monthly payment.

Obtaining a lower interest rate or replacing an ARM with a fixed-rate loan are perhaps the two most compelling reasons to refinance. There are many customers who refinance into the same kind of product for a better interest rate and even more customers who want to get rid of their ARM plans and get into a fixed-rate mortgage.

Another reason to refinance might be to replace multiple loans, such as a first mortgage and a home equity loan or a home equity line of credit, with just one loan and a monthly payment.

The current downward direction of interest rates might result in lower payments on an existing line of credit without the trouble of refinancing, but fixing the payments on a first and a second mortgage by refinancing into a new first still makes sense for some borrowers.

Longer term can erase benefit of lower rate

Regardless of your motivation, you should consider the costs and the term of a new loan before you decide to go ahead. While the out-of-pocket costs may be modest, they're typically not zero, and other costs may be added to your loan balance to be paid off as part of your total loan amount.

Poor reasons for refinancing:

The cost is more than the payback period.
Cashing out home equity in return for a higher rate.
Gambling with the perpetual �lower-rate game.�

The day when you'll eventually pay off your loan in full may seem like a long time away, but it's still worth having the big picture in mind and planning accordingly. For example, if you've already paid off seven or eight years of your mortgage, you might want to refinance into a loan with a 15-, 20- or 25-year term instead of a new 30-year term because the additional interest you'd owe over those extra years of payments might negate the benefit of a lower interest rate.

It makes sense to continue to reduce the term as you refinance so you don't simply go back to a longer amortization term for the purpose of getting a lower payment. That may suit some people, but in general people want to be thinking about what their long-term financial objectives are.

The decision to cash out home equity for other purposes also is more difficult today since home values generally haven't appreciated at the same rapid pace that was common a few years ago.

Jumbo loans and mortgage insurance add more twists

Borrowers who have a jumbo mortgage might be able to save more money if they wait to refinance until after the federal government raises the current cap on conforming loan amounts.

A "conforming loan" is smaller than $417,000 (or $625,500 in Alaska and Hawaii) and thus can be sold to Fannie Mae or Freddie Mac, the two government-sponsored enterprises that purchase mortgages from lenders. Larger loans are known as "jumbo mortgages."

If the limit were raised, borrowers who lived in states that have high housing costs, had good credit and were able to avoid a jumbo mortgage because of the higher limit could save as much as $3,000 to $5,000 per year, according to the National Association of Realtors. But if the limit weren't raised, refinancing might be less attractive for those borrowers since interest rates haven't fallen as much on jumbos as they have on conforming loans.

Refinancing also may prove unattractive for homeowners who have mortgage insurance in part because Fannie Mae and Freddie Mac are set to introduce new risk-based pricing schedules that will increase the cost for most borrowers who obtain a conforming loan. Again, those extra fees may wipe out the benefits of a lower interest rate.

We all have our own scenarios. So, it is important that you consult a mortgage professional to see what your best options are.

Francis Vayalumkal is a mortgage banker with Regions Bank and can be reached at (813) 719-0303 [email protected]

	Nitesh Patel

MONEY AND FINANCE: ARE YOU AN EFFECTIVE FINANCIAL DECISION-MAKER?
By NITESH PATEL

Financial matters can seem overwhelming. Some people are overly confident about managing their finances, while others are perplexed and choose not to make any choices. Many of us have these kinds of financial hang-ups that are keeping us from achieving true financial security.

Take a moment to think about how prepared you are for retirement and the amount of preparation you�ve done. How much have you saved so far? Where are you with respect to saving for other financial goals, such as a child�s education? Do you feel prepared for a financial setback?

According to a Northwestern Mutual Financial Network survey (Money Maladies survey conducted by Harris Interactive for Northwestern Mutual, 2000-2002), 7 out of 10 Americans are comfortable with the amount of preparation they�ve done. Yet, the study found:

One-third have not begun to prepare or save for retirement.
One-fourth didn�t know how much they�ve saved.
One-fourth did not save anything on a monthly basis for long-term goals.

As these findings suggest, many Americans are blinded by overconfidence and tend to overestimate their abilities, knowledge and skills.

Adding to the problem is another potential financial misbehavior or �blind spot� � decision paralysis. If you intend to set up a retirement account but never seem to get around to it, you probably have a case of decision paralysis.

There are several types of retirement accounts and funding options from which to choose. As more choices are added, it becomes harder to sort though them and pick the best option. Too many choices and barriers cause people to do nothing. And without a deadline for making a decision, the paralysis can continue to the point that a decision is never made at all.

As the research indicates, most people are living in a financial fantasy and are far too optimistic about meeting their financial goals. Overconfidence and decision paralysis are conditions that can lead to serious money maladies, which are detrimental to long-term financial wellness. A good financial professional can help you evaluate your situation, understand your potential blind spots and ultimately turn them into positive behaviors.

Nitesh Patel is a financial representative with the Northwestern Mutual Financial Network based in Clearwater for The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin). To reach Patel, call (727) 799-3007 or e-mail [email protected].

	Kamlesh Patel

CRUNCHING �EM NUMBERS: millions to get rebates in economic stimulus law

By KAMLESH H. PATEL, CPA

Starting in May, more than 130 million households will receive rebate checks from the IRS, money that Congress hopes will be spent to provide a boost to the slowing U.S. economy.

These rebates are the main provision in the Economic Stimulus Act of 2008 signed by President Bush on Feb. 13. The new law also provides tax breaks to encourage business spending, including an increase in the 2008 limit for first-year expensing of business equipment purchases from $128,000 to $250,000. Businesses also may qualify for 50 percent bonus depreciation on eligible new business equipment purchased in 2008.

The IRS wants taxpayers to know that they don�t have to do anything extra to receive their tax rebates. A 2007 tax return must be filed because the IRS will use the information on the return to decide eligibility and amount of rebate. Most single filers will be eligible for a rebate of up to $600; married couples for a rebate of up to $1,200. The rebates phase out for higher-income taxpayers, starting at $75,000 of income for singles and $150,000 for couples. Those who qualify for the basic rebate will also receive an additional $300 for each dependent child under age 17.

Individuals with no tax liability but at least $3,000 of earned income in 2007 may qualify for a flat $300 rebate. Social Security income and federal payments to disabled veterans and their widows count as earned income for rebate purposes. The IRS emphasizes that even though some people wouldn�t normally have to file a 2007 return because they owe no tax (and that doesn�t change), they must still file a 2007 return to receive a rebate check.

The IRS is cautioning taxpayers not to fall victim to scam artists already at work calling or e-mailing people claiming to be from the IRS and asking for financial information. The IRS will be mailing information notices to taxpayers; it will not be calling or e-mailing.

do these april deadlines apply to you?

Do either of these IRA deadlines apply to you or your family?

Deadline #1. If you reached age 70� last year, April 1, 2008, could be an important deadline. That�s the last day you can take your 2007 required minimum distribution (RMD) from your traditional IRAs. If you miss the deadline, the penalty could be a 50 percent excise tax on the amount you should have withdrawn.

Here�s how the rules work. Once you reach age 70�, you must start taking annual distributions from your traditional IRAs. Normally, these distributions must occur by Dec. 31 of each year. But a special rule lets you defer the first distribution until April 1 of the year after you reach age 70�. So if you turned 70� last year, April 1, 2008, is the deadline for your 2007 distribution. Be aware that you�ll still need to take your 2008 RMD before the end of this year. The RMD rules don�t apply to Roth IRAs. Unless you�re still working, this deadline also applies to your other retirement accounts.

Generally, the amount of the RMD for any year is based on your age. You take the balance in all your traditional IRAs as of the last day of the previous year, and divide by a factor representing your life expectancy. The IRS has published a standard life expectancy table to use in the calculation. Special rules might apply if your spouse is more than ten years younger than you are.

Because all or part of your distribution may be taxable income, it is important to include RMDs in your tax planning. Ideally you should start planning for RMDs several years before you reach age 70�.

Deadline #2. April 15, 2008, is the last day you can make an IRA contribution for the year 2007. Remember, the 2007 contribution limit is $4,000 if you�re under age 50 and $5,000 if you�re 50 or older.

check out these tax breaks for seniors

When it comes to taxes, growing older has its advantages. Here are some of the tax breaks available as you reach a certain age.

Higher standard deductions. You�re eligible for a higher standard deduction once you reach age 65. On your 2007 tax return, you can claim an extra $1,300 deduction if you�re single. If you and your spouse are both 65 or older, your combined extra deduction is $2,100.

Tax credit for the elderly. You may qualify for this direct credit against taxes if you�re age 65 or older during the tax year. There are limitations if your tax-free pension benefits, such as Social Security, exceed certain levels. Income limitations may also apply.

Tax breaks for social security benefits. Generally, you�ll pay no tax on Social Security benefits if the total of one-half of the benefits plus all other income is less than $25,000 (singles) or $32,000 (married filers). Above those levels, you�ll pay tax on up to 50 percent of your benefits. High-income seniors could be taxed on up to 85 percent of their Social Security benefits.

Possibly escape filing a tax return. Because of the higher standard deductions and potentially tax-free social security benefits, your taxable income may not reach the filing threshold. You may need to file for other reasons, though. Note that filing this year is required to receive the tax rebate provided by the recent economic stimulus law. So, even though your income threshold would normally mean no filing is required for 2007, you should file to get your rebate check. Checks will be mailed by the IRS starting in May.

Higher contributions. Once you reach age 50, you may contribute more to your retirement account � an additional $1,000 to an IRA, $2,500 to a SIMPLE, and $5,000 to a 401(k). At age 55, you can contribute $900 extra to a health savings account for 2008 ($800 more in 2007).

Additional breaks on state taxes. Some states offer special breaks on taxes for seniors. Also check whether you qualify for deferral programs or other breaks on your property taxes.

Kamlesh H. Patel, CPA, can be reached at (813) 949-8889 or e-mail [email protected] or [email protected].

	Satya Shaw

PROTECTING YOUR RETIREMENT ASSETS
By SATYA B.SHAW, MBA, CPA

A successful retirement does not just happen; you have got to plan for it. The long ramp toward retirement focuses on saving and investing, but once retirement starts emphasis shifts to spending and safeguarding. Even though the greatest challenge in retirement, and probably your greatest fear, is outliving your money, most people spend less time planning their retirement than they do planning a vacation.

What does retirement planning involve? Here are the steps: First, determine what you would ideally like to do in retirement, and then discuss it with your spouse and other loved ones. Will you spend your time traveling, enjoying hobbies, helping others, working part time, or what? Second, estimate the retirement income you'll have from savings, Social Security, pension and all other sources. Third, estimate your expenses making sure to take account of inflation, taxes and health care costs, which are likely to be an increasing part of your budget.

Steps two and three should be done for each five-year period of your retirement and then revised annually. Fourth, if you have more income than needed, you only need to safeguard your investments to make sure they're not lost or shrunk by bad decisions. If you have insufficient money for retirement (expenses exceed income), then you'll need to postpone retirement, work part-time or possibly use a Reverse Mortgage to access the equity in your home. Either way, it is highly recommended that you minimize your exposure to loss and maximize the full potential of your financial resources by working with a financial adviser. They can help you determine the risk you can afford, investment options and how to position your money for best results without sacrificing safety. Retirement is going to be long, filled with uncertainties, including emergencies, and going it alone is one of the greatest risks you can take.

Be realistic in your planning. For example, be aware that for a couple age 65, there is a 50 percent probability that one will live beyond age 90. Acknowledge that even a low rate of inflation can make a big difference in prices over the 20 to 30 years you'll be in retirement. For example, average inflation of 3 percent means $1 today will be worth only 55 cents in 20 years and 41 cents in 30 years. Since 78 million boomers are entering retirement over the next two decades, the price of everything related to retirement, especially health care, is likely to rise faster than overall inflation. Inflation is a cruel tax for those on fixed incomes, and chances are your income in retirement will increase a lot slower than prices.

The boomer explosion is going to overwhelm government-provided services and benefits. This means that the relative benefits of Social Security and Medicare are going to shrink under the pressure of increased retirees. There will simply be more people receiving entitlement benefits than workers paying the bills. Every study, government and private, indicates there will be a shortage of money to support these programs. To pay for this shortfall, the government must raise taxes of all types. The increased taxes, inflation, relative decrease of benefits combined with escalating medical care costs will be especially burdensome for those in retirement without rising incomes from wages and salaries.

If you haven't evaluated it yet, investigate the risk you're taking with your retirement money. Would you have a loss if the stock market lost ground? You might if your money is still in your ex-employers 401(k) plan, or if you own securities, even mutual funds, whose value is determined by the market. Generally, investments in stock have done well long term, but you may need your money before a long time. From November 1973 to October 1974, the S&P stock market index fell 48 percent, and it took over six years to recover. The last bust in the stock market was 2000-2002, and we have yet to fully recover. In the meantime, inflation marches forward with the shrinking dollar purchasing less. Much of your income in retirement is likely to be derived from your savings and investments, and you simply can not afford risk of loss and the compounding of inflation. If you lose some or all of your retirement money to bad investments, you'll increase dramatically your chances of realizing your greatest fear: outliving your money.

How do you safeguard against the challenge of too many years and not enough money? Like law and medicine, financial planning is best left to professionals. Your job in retirement is to enjoy life free of investment worries.

Satya B. Shaw, CPA, can be reached at (813) 842-0345.