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Francis Vayalumkal

Purchasing a home is a complicated process. You found the best Realtor, the best house, the best home inspector, and the best title company. Do you need to spend time shopping for the best mortgage? Yes. Really.

You may be tempted to jump at the first lender who flashes a low interest rate at you. However, that low rate may not be your best deal. If you're as choosy about your mortgage as you are about your house, you could save a lot of money over the long term.

The Rate You See May Not Be the Rate You Get

There can be a wide discrepancy between advertised mortgage rates and the rate you're actually eligible for. These differences are due to borrowing conditions, which include

Type of mortgage; Market conditions; Type of property to be purchased; Personal credit history. For their lowest rates, lenders very often assume you:

  • Have a credit score of 720
  • Are a U.S. citizen
  • Can document your income
  • Will make a 20 percent down payment
  • Use the loan for a single unit primary residence

    This doesn't mean you can't get a loan if your circumstances differ from those assumptions, but it does mean you may pay more for it than the advertised rates.

    The Same Rate Will Mean Different Things for Different Mortgages

    When shopping for mortgages, it's important to not to compare apples and oranges. If you lay the facts out side-by-side, you might realize that a 6.75 percent fixed-rate mortgage could actually end up being cheaper in the long run than a 5 percent adjustable rate mortgage (ARM). Interest rates reflect the degree of risk assumed by the lender. If a bank gives you a fixed-rate mortgage at 7 percent APR, and 10 years later, the prevailing rates rise to 12 percent, they have no choice but to continue servicing your mortgage at the rate you locked in. And that's why interest rates for fixed-rates tend to be a little higher. You're paying for security.

    For lower rates, like those offered through an adjustable rate mortgage, you assume the risk of higher interest rates and monthly payments. Your 5 percent rate could be 9 percent in five years, with a jump in monthly payments that would make your jaw drop. To protect yourself from such a fate, make sure you understand the worst-case scenario for the loan you are considering. It might make that low interest rate look just a little less enticing.

    You'll also find mortgages that are a complex mixture of adjustable and fixed rates, offering one interest rate at the beginning, and another later on. These sorts of hybrid-deals are dreamt up to make buying a home more affordable in the short term. And you in turn may be lured into them with thoughts your income will continue to grow; you'll win the lottery, whatever. Just remember they're a gamble. And it can be a scary thing to base your home purchase on a game of chance.

    Closing costs also are an important factor. You'll pay between 2 and 7 percent of your mortgage for this and you need to look at it carefully. Two to 7 percent of the mortgage is normal. However, some lenders may charge more extra fees than others. This means that a loan package with a relatively unexciting interest rate might turn out to be a real bargain when the closing costs are figured in. You can shop for the best closing costs by asking potential lenders for an estimate before you apply or commit. (After completion of your loan application, you'll also receive a "Good Faith Estimate" that itemizes your projected closing costs. Remember that this too is an estimate only, and actual charges at closing may be a little different.)

    Typical lender-related closing costs include:

  • Appraisal fee;
  • Credit report fee;
  • Processing fees;
  • Recording fees and transfer taxes;
  • Title search fee.

    It's always best to double check rates with a healthy dose of diligence and a pocket calculator. Do some comparison shopping, choose the best loan for your individual situation and budget, and pay special attention to the total cost of the loan (not just the rate), and you'll increase your chances of getting a good, fair deal.

    Francis Vayalumkal is a loan officer at Market Street Mortgage and can be reached at (813) 971-7555 or via e-mail at

    Finance | Financial advice | Immigration | Special Needs | Accounting | Business | Labor Law | Asset Protection

    Nitesh Patel

    Nearly 50 percent of active working people rarely think about the real possibility they could someday become disabled from an illness or injury, according to an August 2004 nationwide survey of full-time employees released by America’s Health Insurance Plans (AHIP). The survey was conducted by Ayers, McHenry and Associates (Ayers).

    Yet, 1 out of 3 workers over the age of 30 will become disabled for at least three months at some point during their careers, according to government and industry data compiled by AHIP and the Society of Actuaries Disability Chart Book Task Force for a consumer booklet titled “Disability Insurance: A Missing Piece in the Financial Security Puzzle.” The booklet, published in October 2004, was funded by the Actuarial Foundation.

    The Ayers survey found that 58 percent of respondents believed they were adequately covered by disability insurance. But in their booklet, AHIP and the Society of Actuaries estimate that just 1 out of 3 workers nationwide are fully covered. Another sobering statistic the survey found: Only 1 in 3 working adults think their families could meet their expenses for three months or less if the primary wage earner lost his or her income due to a disability.

    To the extent that people in the prime of their working lives think about disability, they typically believe they are adequately covered through their employer-provided disability plan. In fact, such policies seldom provide families with enough benefits to continue their lifestyle.


    Here are some typical limitations of disability income insurance plans provided through an employer:

  • They pay only 60 percent of base salary. Most income earners, regardless of income level, have spending commitments that consume between 65 and 75 percent of normal cash flow.

  • They do not cover incentive compensation such as profit-sharing contributions, deferred compensation, commission income or regular incentive bonuses.

  • Benefits paid out are taxable income to the employee.

  • Benefits paid are often offset by Social Security disability benefits received.

  • Employer policies often have maximum monthly payout caps.

  • The benefits scale runs to a top base salary of $100,000. This means anyone making more than $100,000 in base salary who becomes disabled receives a reduced benefit.

    Some employees mistakenly believe that the government will fill in any gaps left by a company plan. Social Security disability benefits, however, are only intended for long-term, total disabilities. For this reason, the Social Security Administration denied more than 62 percent of all initial applications requests in 2000. (“charting the Future of Social Security’s Disability Programs: The Need for Fundamental Change,” Social Security Advisory Board, January 2001, Fiscal Year 2000).


    Clearly, everyone who relies on a paycheck needs to assess how long he or she could meet their financial obligations if they were unable to work. As a first step, it’s important to consider consulting with an experienced financial professional who can help evaluate your financial obligations. Look for someone who is knowledgeable and trustworthy. Make sure the insurance company that person represents is reputable, and has superior financial strength and stability, financial ratings, and commitment for the future.

    The ideal professional can help determine how much income would be available during a disability through employer-provided disability benefits, as well as through investments and other sources.

    He or she can also determine what your expenses might be in the event of a disability. Key considerations include groceries, mortgage payments, taxes and other basics. Most experts agree you'll need a policy that covers at least 60 percent of your gross income for as long as you can't work. Why just 60 percent? Because most people pay their disability premiums with after-tax dollars, the benefits they receive are tax-free.

    If additional disability income coverage is needed, a financial professional can advise what types of supplemental coverage would be appropriate. Underwriting rules by insurance companies often dictate how much coverage is available to an individual, but the wide variety of plans on the market today can suit many different income levels and budget requirements. The process need not be a grueling one, nor should it require considerable time.

    What’s most important is to have a solid disability income policy in place. Life can sometimes take an abrupt turn. By protecting your assets against the unexpected, you’re prepared, no matter what path life takes.

    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

    Finance | Financial advice | Immigration | Special Needs | Accounting | Business | Labor Law | Asset Protection

    Kamlesh Patel
    CRUNCHING ‘EM NUMBERS: 900-page Pension Law Includes Tax Change


    s The Pension Protection Act of 2006, signed by President Bush on Aug. 17, revised the funding rules for pension plans. It is hoped that requiring most company pension plans to be fully funded within a seven-year period will lessen the need for taxpayer-funded bailouts of failed plans. Tucked away in the 900-plus-page law are a number of tax law changes. Here’s a quick summary highlighting the changes.

    The higher contribution limits for IRAs, SEPs, SIMPLEs, 40l(k)s and 457 plans, set by the 2001 Tax Act, were scheduled to expire after 2010. The pension law makes the higher limits permanent, including the additional contributions permitted for those aged 50 and older. Roth 40l(k)s, also previously scheduled to expire, are made permanent.

    The “saver’s credit” of up to $1,000 available to lower-income taxpayers who contribute to a retirement account is made permanent, and the income thresholds for eligibility will be adjusted for inflation after 2006.

    The $500 retirement plan start-up credit for small businesses is made permanent. The credit is for plan expenses in the first three years.

    Nonspouse beneficiaries (e.g., children, siblings, significant others) of a decedent’s retirement account will be able to roll over the account into an IRA, an option formerly permitted only for spouses of a decedent.

    The favorable tax treatment allowed for Section 529 plans (college accounts) is made permanent; withdrawals used for qualifying higher education expenses will continue to be tax-free.

    Military reservists called to active duty and public safety employees (such as policemen and firemen) will be able to take penalty-free early withdrawals from retirement plans if certain requirements are met. Rules for deducting charitable donations are tightened. Cash donations, even those under the previous $250 threshold, will have to be substantiated by a bank record or written documentation from the charity. Donations of used clothing or household goods will be tax deductible only if they are in “good” condition. the “kiddie tax” rules have changed

    Shifting income from higher tax bracket parents to lower tax bracket kids has become more difficult with the recent changes to the so-called “kiddie tax” rules.

    Under the old rules, children under the age of 14 could have received as much as $850 in tax-free investment income in 2006. The child wouldn’t have to pay taxes on interest, dividends, or capital gains (either short or long-term) up to this amount. Additionally, the child would have to pay taxes on the next $850, but at a lower tax rate than his or her parents. Once investment income exceeded $1,700, the child would be required to pay taxes at the parents’ highest tax rate.

    Under the new rules, the first $850 of investment income remains untaxed, and the next $850 is taxed at the kid’s rate. But more than $1,700 in investment income for a child under age 18 will be taxed at the higher parents’ rate. Essentially, the law extends the kiddie tax rules an additional four years to age 18. Significantly, these new rules took effect in January of this year. As under the old rules, earned income from wages is not subject to the kiddie tax.

    With the advent of the new rules, some of the prior methods of shifting income to children, such as the use of custodial accounts and gifting appreciated stock, become much less appealing. Instead, consider alternative methods of investing for the kids, such as tax-free municipal bonds or Series EE savings bonds. Don’t overlook investing in growth stocks paying low dividends. The stock can be sold after the child turns 18. Direct investments into education savings accounts (called “529 Plans”) also avoid the kiddie tax.

    changes in roth conversion rules provide new opportunities

    Taxpayers with adjusted gross incomes over $100,000 have had to sit on the sidelines when it comes to converting their traditional IRA to a Roth IRA. But recent tax law changes have eliminated this restriction beginning in 2010, opening the door to a popular tax-planning opportunity. Should you consider a Roth conversion?

    The rules regarding IRAs are fairly straightforward. Contributions to a traditional IRA are tax-deductible, and withdrawals made at retirement are taxable. Conversely, a contribution to a Roth IRA is not tax-deductible, but retirement withdrawals are not taxable. In addition, the traditional IRA requires distributions beginning at age 70½, while the Roth has no such requirement.

    The absence of required distributions and other factors have made converting a traditional IRA to a Roth attractive to many taxpayers. But there is a catch — income taxes must be paid on the amount converted. To help cushion this burden, newly qualified taxpayers will be allowed to spread the tax over two years.

    Is converting to a Roth a good idea for everyone? If you expect your tax bracket to be significantly lower at retirement, or you do not have non-IRA cash to pay the tax bill, then you might want to remain with the traditional IRA. However, the greater the number of years until retirement, the better the conversion looks. Be aware that there is some skepticism that this law will remain on the books until 2010. Until then, maximizing your traditional IRA annual contribution, or even contributing to a nondeductible IRA, might be a good strategy.

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

    Finance | Financial advice | Immigration | Special Needs | Accounting | Business | Labor Law | Asset Protection

    Satya Shaw

    What is asset protection?

    Asset protection revolves around helping clients who have money to protect from typical creditor from a negligence suit. A few examples of a typical creditor are a patient who sues a physician for malpractice; someone who slips and falls on property and sues the owner; or someone injured from someone negligently driving a car. Asset protection can be done domestically by use of LLCs (Limited Liability Companies) and FLPs (Family Limited Partnerships).

    While it is true that people with money do need to protect themselves from the typical creditor, there are many others out there you need to be protected from. Who are other common creditors people don’t think of as a typical creditor?

    The IRS. The IRS is everyone's No. 1 guaranteed creditor every year Every year, high-income clients pay taxes to this creditor. Would you like to pay $15,000, $50,000+ less in income taxes this year?

    The stock market. You know this is the case if you had money invested from 2000-2002 when the stock market lost nearly 40 percent of its value. Do know when the terrorists will strike again? Would you like to invest in the market with reasonable potential for growth and still principal and interest protected? One way to protect yourself from downturns in the stock market is by using FIA.

    Capital gains. Many people every year sell highly appreciated real estate and stocks. Those clients complain because they have to pay capital gains taxes. Two ways to defer capital gains taxes are through the use of 1031 exchange and Private Annuity Trust.

    Estate taxes. People with wealth worry about the estate taxes that will be paid upon their death. Few people truly know the advanced estate planning and ways to mitigate estate taxes. There are many tools to reduce the size of your taxable estate so as to minimize or eliminate estate taxes.

    Long-term care expenses. The No. 1 guaranteed creditor of people over the age of 65 comes from the health industry in the form of long-term care expenses (drug costs, home health care, nursing home, surgeries, etc.). The best time to protect yourself from this guaranteed cost is to deal with it when you are still working. The earlier you deal with this expense, the lower out of pocket costs you will have.

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

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