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Francis Vayalumkal

I hope the title of the article doesn’t have you wondering – Why is a mortgage guy talking about arms in a financial column? Don’t worry; I am talking about Adjustable Rate Mortgage (ARM).

Many people I know refinanced their fixed-rate mortgages, which were at 6 or 7 percent for the lower rate ARMs in 2003 and 2004 when they were the most popular loan programs. A large number of people who were buying at that time also got into an ARM. It shouldn’t come as a surprise or a shock that many of those loans are getting ready for adjusting their rates soon. Not surprisingly, they will all be increasing.

Most probably, that increase is capped at two percentage points a year. Many who refinanced for the lower rates will be back to where they were before. Will they refinance again to get their rates fixed before the second adjustment? Maybe. Maybe not.

While several homeowners will not have to worry about the rate adjusting, a large number of people have to sweat the change. As home prices started to soar five years ago, many buyers took advantage of low-rate ARMs just to get a foot in the door. At the same time, mortgage rates were at historic lows, and lenders began offering more interest-only loans and option ARMs, which allow borrowers to make low minimum payments. While borrowers said they'd take the lower interest rate and put the money aside to offset higher payments later, most didn't.

ARMs accounted for just 22 percent of mortgage originations last year. But in 2004 and 2005, they accounted for about a third of home loans. The short-term indexes to which ARMs are tied have moved up sharply as the Federal Reserve has tightened credit. Of the ARMs due to reset this year, half will be refinanced, predicts the Mortgage Bankers Association.


If you have an ARM, you should start preparing. Several people ask me “What should I do with my ARM?” Let’s start with digging up those loan documents you signed at closing to read the terms.

To calculate the rate on your loan when it adjusts, you need to know the index your ARM is based on, the current rate on the index and the margin that's added to get your full rate. The only information your loan documents won't contain is the latest index rate, but you can get it for the most popular ARM indexes from several places on the Web.

When you have figured out what your rate will be and what your loan balance is, calculate your new payment. You can use several Web resources for mortgage calculators or call a loan officer.


If you're planning to sell soon after your adjustment, refinancing may not be worth the cost and headaches. But if you were planning to stay in your home for a while, you'd be wise to lock in a fixed rate now. Fixed rates are still fairly low and they shouldn’t have any drastic changes for the rest of the year. Being able to refinance into a fixed-rate mortgage that you will never have to worry about a gain won’t be a bad idea. Some borrowers who bought at the peak of the market with interest-only and option ARMs -- who have little, if any, equity in their homes -- could have trouble qualifying for the higher payments of a fixed-rate mortgage. That’s especially true as lenders begin to tighten their standards. Another roadblock to refinancing is prepayment penalties. Last year, 84 percent of option ARMs carried a prepayment penalty that could force borrowers to come up with thousands of dollars if they decide to refinance within the first few years of their loan.

As always, consult with a loan officer or your personal banker to figure out your mortgage options.

Francis Vayalumkal is a loan officer at Market Street Mortgage and can be reached at (813) 932-4578, Ext. 234 or via e-mail at

Francis Vayalumkal is a loan officer at Market Street Mortgage and can be reached at (813) 932-4578, Ext. 234 or via e-mail at

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Nitesh Patel

In terms of personal pleasures, buying life insurance doesn’t usually fall in the same category as buying a new car or a spring wardrobe. However, despite its lack of glamour and prestige, the decision to buy life insurance can be infinitely more important to a family and its future financial security.

Before you begin your search for a life insurance policy, it is important to give some thoughtful consideration to your financial goals. For most of us, it’s hard to imagine how life would be without us in it. But this is the first step in determining what financial resources you need to leave your family so they can maintain the lifestyle you would want for them in case you die.

You might start by making a list, which includes:

those who depend on your income and/or support;

your financial obligations;

your assets;

expenses that would arise which you may not have now. For example, if you are the primary caregiver for your children, what would it cost your family to provide that care without you?

Also, don’t overlook estate taxes. After adding up the value of their homes, cars, investments, pensions, 401(k)s, life insurance coverage and other belongings, many people are shocked to find their total assets could be subject to estate taxes at death. A qualified insurance professional can help you address these and many other concerns.

Additionally, here are 10 things you can do to help you and your family make the most appropriate life insurance purchase:

Do it now. Don’t put off a decision that can have such a profound impact on your family. Also, make sure you have a current will or trust.

Shop for quality. Buy from a company that has the top ratings for insurance financial strength and claims paying ability from the four major rating agencies (Moody’s, Standard & Poor’s, Fitch and A.M. Best).

Choose a representative you trust and like working with. This person should help you identify your personal and financial goals; recommend solutions to help you reach your goals; and review your insurance plan every year to be sure it continues to meet your changing needs.

Know what you’re buying. Make sure you are comfortable with and understand both the company and product(s) you are considering. If you’re only being shown a “best-case” scenario, ask for something less optimistic to see how various non-guaranteed assumptions can impact your premiums, cash values or coverage.

Be honest. Do not omit any part of your medical history on your life insurance application. If you do, the company may be able to refuse coverage, deny a claim or cancel the policy.

Pay less often and pay less. Save money by paying premiums annually rather than semiannually, quarterly or monthly, if possible.

Be prepared to wait. While most companies provide conditional coverage when you pay up front, you can expect delivery of the actual policy within approximately three months (it often takes time to get all the necessary medical records). If you don’t have it by then, contact the company.

Read the fine print. When you get the policy, read it carefully and ask your representative to explain anything you don’t understand. Remember you have a “free-look” period (10 days in most states) that entitles you to cancel and return the policy for a full refund, without penalty.

Tell those impacted. Inform your beneficiaries about the type, amount and location of any life insurance policies you own. Keep your policies in a safe place at home. Document the name and phone number of your representative and insurance company and all policy numbers in a safe deposit box. Get an annual check-up. Meet with your representative to review your life insurance coverage at least once a year to be sure it continues to meet your needs.

Be cautious if another representative suggests you cancel your current policy to buy a new one. Chances are you’ll be better off keeping your old policy – especially if it’s a “cash value” policy. Contact your original representative or company before making any decisions.

All things considered, when purchasing life insurance, shop carefully, ask questions and make sure you understand the answers. Keep in mind, as with most things in life, you get what you pay for.

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

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Kamlesh Patel
CRUNCHING ‘EM NUMBERS: is the alternative minimum tax in your future?


Were you among the several million taxpayers who had to pay the alternative minimum tax (AMT) last year? Even if you escaped in 2006, keep reading! Unless the law changes, you could be among the millions more who’ll have to pay AMT in the years ahead.

The AMT was set up in the 1960s to make sure wealthy taxpayers didn’t use deductions and exemptions to avoid paying any tax. It applies a 26 or 28 percent tax rate to income above a certain exempt amount. The problem is that the exempt amount was never indexed for inflation, so more and more middle-income earners find themselves above the threshold.

For 2006 tax returns, the exempt amount was $62,550 for married filers, $42,500 for singles. This may sound generous. But you can’t claim personal or dependent exemptions, the standard deduction, or some itemized deductions against the AMT. So, if you have a large family or pay high property and state income taxes, you could be vulnerable. Exercising incentive stock options also can trigger an AMT bill. And unless Congress acts again, the amounts will fall back to lower levels this year.

It’s wise to find out if you’re likely to be affected by the AMT this year or next. If you are, you may be able to take steps to minimize your overall tax bill. Strategies might include adjusting when you make tax payments or charitable contributions, accelerating income, or changing how you exercise stock options.

to boost profits, should you cut taxes or cut costs?

In today’s economy, every businessperson is looking for ways to maintain business profits. Ideas for increasing sales and cutting costs abound. You’ve probably tried most of them. But there’s one source of cost savings that is often overlooked, and it can be surprisingly effective.

Most businesspeople don’t think of taxes as a profit source, but saving a dollar of taxes can be even better for your financial health than cutting a dollar of costs. Why? When you reduce your taxes, you get to keep 100 percent of the savings. On the other hand, when you increase profits by increasing sales or cutting costs, you must share a portion of your additional profit with the IRS.

Consider this example. Say you do an exhaustive study of your operations and figure out a way to cut $10,000 of costs. If sales are unchanged, you’ll boost your pretax income by $10,000. Assuming a 39 percent corporate income tax bracket, you’ll pay $3,900 in taxes on the $10,000 income, leaving $6,100 of after-tax profits.

Now, let’s look at an alternative scenario. Assume you do some serious tax planning and identify $10,000 of tax savings. That’s $10,000 less that you’ll pay to the IRS and $10,000 more cash in your bank account. Conclusion: A dollar of tax savings has more financial impact than a dollar of cost reductions.

Depending on how efficient your business is, you should be on the lookout for ways to cut costs. But don’t give up when you’ve run out of cost-cutting ideas. It’s highly unlikely that your business is taking advantage of every tax-saving opportunity available. As this example shows, effective tax planning could be the most direct way to end up with more money.

Kamlesh H. Patel, CPA, can be reached at (813) 289-5512 or (813) 846-5687 or e-mail or

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Satya Shaw

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.

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