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Francis Vayalumkal

For several years some of the most popular mortgage products included Adjustable Rate Mortgage (ARM) and interest-only loans. People who got into 1-, 3- or 5-year ARM products in the recent past have already started shopping around for refinance options.

Refinancing your home can be a smart financial move. Your mortgage may need a little "tuning up" for you to get the most out of it. Like an automobile tune-up, though, a refinance costs money, and it's your responsibility to know if you're in need of maintenance (or not). Your mortgage "mechanic" may not offer that information up.


Are you refinancing to lower your monthly payment, change from an adjustable to a fixed rate or to take equity out of your home for college expenses? It's best not to look at refinancing as a financial salad bar and take a little bit of everything. Staying focused from the start will avoid a lot of confusion later and help you select the correct mortgage.


As a general rule, it's better not to take cash out of a refinance if you can avoid it. For one thing, when your refinance becomes a "cash-out" refinance, your interest rate creeps a bit higher. So, taking cash out of your home means you'll be paying it back for a long time. Explore home equity loan options and compare rates before deciding a "cash–out" refinance is your best option.


Commonly, dropping interest rates will trigger a lot of mortgage refinances. In the old days, it used to be said that you shouldn't refinance until the difference in interest rates is at least 3 percentage points. Nowadays, people refinance for half a percentage point or less. What's important is not so much the change in interest rates as how long it will take you to "break even" on the transaction. How long will it take you to save enough money through lower monthly payments to "earn back" what you spent on closing costs? An often-convenient way to calculate this is to divide your closing costs by the difference in your monthly payments, and if you're financing for an equivalent mortgage term, this works well as an estimate. Ideally, you should plan to remain in the home long enough to reach the break-even point.

Another time to consider refinancing is when interest rates are on the rise. If you have an ARM, you can lock in a lower fixed rate before your payments increase and become unmanageable. For the past few years, ARMs have been popular and those who have it need to see if it is time to refinance it into a fixed rate, if they have not already done so.


Some borrowers refinance to change the term of their loan. If you can't afford to make your monthly payments, and have a mortgage with less than 30 years remaining, this might be an option. You can refinance for a full 30 years again, and have a lower monthly payment. It should be a last resort, though because this strategy will increase the total interest amount you pay on the loan.

A shrewd tactic is to take advantage of lower interest rates and refinance for a shorter term, if you can manage the payments. If interest rates have dropped since you took out your 30-year mortgage, you may now be able to afford the payments on a 15-year mortgage. This is the ultimate delayed gratification approach since you won't be able spend the money you are saving until you own your home free and clear at the end of the mortgage. But it's a great method of "forced savings" that will leave you with a lot of disposable income later.

Changing the term of your mortgage involves some tricky mathematics. Whenever the term is different, your "break even" point will be affected. Don't forget to take this into account when making your decision.

Just because you can refinance doesn't mean you should. If closing costs are high or your overall savings would be small, the best deal of all may be to keep making monthly payments on your old mortgage — an unglamorous, but solid, way to pay down your debt and build up home equity.

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

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

Nitesh Patel

There�s more to permanent �cash value� life insurance than meets the eye. The benefits provide a double comfort because there are two positive aspects to a permanent life insurance policy: the death benefit that usually consists of an income tax-free payment to the beneficiaries; and the cash value that grows tax-deferred and can be accessed by the policy owner during the insured�s lifetime. It is the only financial product available today that offers both of these advantages.

Critics of permanent life insurance say it�s always better � and cheaper � to buy only term insurance (with no cash value) and invest the premium savings elsewhere. The premise being that, for the same out of pocket cost, you would be better off purchasing a term policy and a separate investment (made up of the premiums saved by purchasing a term policy) than you would using the same money toward the purchase of a permanent, cash value policy. As with any blanket recommendation, because it does not take into account an individual�s unique circumstances, it may be good advice for some, but inappropriate for others. It also ignores an important factor: human behavior.

The truth is, of those who bought term instead of permanent life insurance with the intention to �invest the difference,� only 14 percent actually do invest all the money they save, according to a consumer behavior study commissioned by Northwestern Mutual Life Insurance Co. (�Money Maladies: The Term/Perm Dilemma� Consumer Behavior Study, Northwestern Mutual, 2/03). Unfortunately, this means 86 percent of those following the advice to �buy term and invest the difference� are leaving themselves and their families vulnerable to a potentially serious gap in their financial and insurance protection.

You don�t have to die to benefit from permanent life insurance.

Americans have a hard time saving, period. In fact, the savings rate (the percentage of after-tax personal income not going into consumption) in the U.S. has declined from 12 percent in the early 1980s to just about zero today. ( �Financial Strategy Saving Grace� A. Gary Shilling, 2/14/05). While the first and foremost reason to purchase life insurance is for its death benefit, the cash value of a permanent policy can also provide valuable cash resource.

One major advantage of most permanent insurance is that you do not pay income taxes each year as the cash value increases. And, in most cases, you can access the cash on a tax-favorable basis. This gives permanent life insurance the potential to help you reach a number of financial goals during your lifetime:

* Supplement your retirement income. In general, we�re all living longer and fewer people have pension plans. If you�re young, there is a chance Social Security won�t provide as much income as you hope. The cash value of a permanent life insurance policy can be an additional source of funds and help you boost your income after you retire.

* Help fund an education. The increase in public four year tuition for the 2003-04 academic year was the highest in three decades. And, in just 10 years, the average cost for tuition and fees has risen 47 percent at public four-year colleges and universities and 42 percent at private colleges. When on-campus housing, books, supplies, transportation and other personal costs are factored in, the cost to attend a public four-year university or college for one year now averages $10,636 and $26,584 at private institutions. (2003-2004 College Board�s Annual Survey �Trends In College Pricing�).

Life insurance is one of many financial tools that can help ease the burden of paying for college. It also is one of the few assets that will not be considered when determining your child�s eligibility for financial aid.

* Pursue a business or other opportunity. Some of the best opportunities in life require cash. Permanent life insurance can be one way to access that cash when you need it. A permanent policy can be used as collateral for a loan from another financial institution. A loan backed by a life insurance policy�s cash value is usually considered a safe risk by a loan officer.

* Have an �emergency fund.� While many people never plan to take a loan or withdraw any money from their permanent policy�s cash value, it can serve as an immediate source of cash in the event of an unforeseen financial emergency.

While taking money out of a policy through loans and/or partial surrenders will reduce the death benefit and have potent ional tax consequences, you do have the option of repaying a loan at a later date, allowing you to restore the death benefit.

Clearly, no other financial product can do what permanent life insurance does: immediately provide cash in the event of the insured�s death and be a source of cash while the insured lives. While no insurance or financial product is the one and only answer for everyone, depending on your circumstances, permanent life insurance can be an important financial tool to help you achieve financial security. A qualified financial professional who knows your needs and goals can help you determine if a permanent policy is, indeed, worth a look.

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].

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Kamlesh Patel
CRUNCHING �EM NUMBERS: What Should A Business Valuation Include?


Do you know what your business is worth? Though business valuations can be both time-consuming and costly, there are situations that necessitate having a business valuation. Just what should you expect to see in a proper business valuation?

First of all, the assumptions supporting the valuation should be clearly stated. A business valuation, like any other type of appraisal, is an estimate, and the underlying basis for that estimate should be clear. The valuation report also should disclose the standards and methods used to appraise the business, as well as the date the appraiser used for the value.

A good business valuation will clearly state what�s being valued. For example, the valuator may appraise the company�s income stream to determine a current value. If the business owns assets that are not used to generate this income stream, they should be excluded from the appraisal. If the business doesn�t own certain assets that nevertheless are needed to generate the income stream, a good appraiser will factor in those assets as well.

A proper valuation will consider liabilities. Is the seller expected to pay off liabilities with the proceeds, or will the buyer assume the liabilities? With a good valuation, you shouldn�t have to guess.

As with other types of appraisals, a business�s value can be determined using several methods. There�s the income approach, which calculates today�s value of future earnings and adjusts for inflation and risks. A valuator may use the market approach, comparing your business to similar companies that have recently sold. Another option is the cost approach, which tries to calculate the firm�s net worth by establishing a fair market value for the business�s liabilities and assets.

Bottom line: A good valuator will consider many factors, including the nature of the business, economic outlook and �goodwill� or other intangible assets, to establish a reasonable estimate of the firm�s value.


If you�re considering getting your business appraised, you�ll want to be aware of the IRS rules and guidelines about business valuations. If you or your estate sell or donate a business, several types of taxes may come into play: capital gains taxes, estate taxes and gift taxes, for example.

The IRS uses several factors to determine the value of a business for tax purposes. First, it will consider the nature of the business. A new business run by a sole proprietor, for example, may have less chance for future success than an established manufacturing company. The IRS also will consider the firm�s economic outlook and the condition of the industry in which the business operates. These days, a dealership in, say, New Orleans may not be as valuable as one in Seattle. A good IRS reviewer will scrutinize certain financial information used to value the business, such as the firm�s net book value (assets minus liabilities), historic and projected earnings, and overall financial condition.

An expert business valuation will lay out these factors in a clear, reasoned and convincing way so that the value of the business will be evident to an IRS reviewer. A proper valuation report should make the case so clearly that the valuation will withstand IRS challenges.

IRS challenges are not uncommon. For example, the IRS may take the position that the actual value of a deceased owner�s closely held business is significantly greater than the value reported by the estate. If the IRS challenge holds up in court, the estate may have to pay substantially higher estate taxes.


Many small businesses and self-employed business owners make the mistake of not thinking about taxes until it�s too late. Most tax moves must be made before year-end. Here are a few tax-cutting ideas that will help reduce your 2006 business taxes.

* Purchase business assets. If your business will soon require additional computers, furnishings or even transportation equipment, make those purchases before the end of the year and take maximum advantage of the Section 179 expensing election.

* Plan for retirement. If you don�t have a retirement plan, consider setting one up before the end of the year, even if you don�t have to actually fund the plan until 2007. In fact, there are federal tax credits for some of the costs of setting up a new retirement plan. And don�t overlook a Simplified Employee Pension (SEP) plan, which does not have to be either established or funded until 2007.

* Use your credit card. Even a cash basis business can deduct expenses purchased with a credit card on the date of the charge, not necessarily when the credit card payment is made. So, if you find that you need business supplies or equipment before the end of the year and you�re short of cash, consider using your credit card and deduct the expense this year.

* Defer income and accelerate deductions. For cash basis taxpayers, consider sending out your invoices late in December so the payment isn�t received until the following year, thereby deferring current taxes. Also, stock up and pay for office supplies and other needed office items before year-end, including paying any outstanding bills or prepaying certain business expenses.

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

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

Satya Shaw

After several years of answering asset protection questions, we have come across five of the most common misconceptions.

1. �I will wait until someone threatens me with a lawsuit� � This is probably the most common mistake. When a lawsuit has been filed, it is too late. No asset protection plan will work. The judge will most likely rule that any structures created or assets transferred after the fact as fraudulent transfer. An asset protection plan has to be put in place before the threat of a lawsuit to be effective.

2. �No one will sue me� � With more than 20 million lawsuits filed each year in the U.S., just about everyone with assets is at risk of a lawsuit. According to the American Bar Association, there are close to 700,000 lawyers in practice in America. That is one lawyer for every 420. Many lawyers make a living solely on suing others for part of the winnings. So, if you own a business or practice a profession, you have a one in three chance of being named in a lawsuit this year. Do you want to win or lose in this lawsuit lottery?

3. �I do not have much to protect so I am not worried� � A creditor can come after your bank, brokerage accounts and other investments. Collection attorneys know that the best way to get you to come up with money is to threaten a foreclosure on your real estate investments. If you have a sizeable equity in real estate investments, you are vulnerable. Just because your net worth is not in the millions does not mean that you do not need protection. Someone with a $5 million net worth can probably absorb $500,000 of loss from a lawsuit but someone with a $500,000 net worth cannot afford the same loss.

4. �A trust is what I need for asset protection� � Many people have been told that trusts and family limited partnerships (FLP) can provide all the asset protection necessary. Well, they are wrong. Trusts and FLPs are primarily estate planning tools. They do provide as a side benefit a small degree of asset protection. However, there have been too many cases where trusts and FLP were busted by lawsuits and assets were lost. So, they are unreliable as asset protection tools.

5. �I will just transfer my assets to my spouse or relatives� � This is probably the worst thing you can do. Any competent collection attorney will sue you as well as your family members to collect the debt. In addition, your relatives or friends could refuse to return your assets when you want them back. Worst yet, they can be sued for their own liabilities such as a car accident and your assets are therefore exposed to their lawsuits. Transferring assets to relatives is no protection at all and increases your risks of losing them.

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

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