Fed Rates: Wealth Economic Update Nov. 28, 2016

U.S. and World News

  • rate518867918Minutes from the November Federal Reserve meeting were released this week and were consistent with Fed Chair Janet Yellen’s recent congressional testimony. Most officials saw a rate increase occurring “relatively soon, so long as incoming data provided some further evidence of continued progress toward the Committee’s objectives.” While this meeting occurred before the Presidential election which seemed to catch markets off-guard, recent data has continued to be strong enough to likely warrant a rate hike in December.
  • OPEC will debate an oil output cut of between 4%-4.5% at its meeting in Vienna next week. The output cut had originally been agreed to on September 28th but the details behind its implementation still need to be worked out. The deal is still no sure thing as some of the member countries are opposed, for example Iran, which was only recently allowed to re-enter the global oil markets and therefore does not want to cut production.

Markets

  • This week the S&P 500 increased 1.45% and closed at 2,213. The Dow Jones rose 1.51% and closed at 19,152. So far in 2016, the S&P is up 10.29% and the Dow is up 12.41%.
  • Interest rates increased significantly higher once again this week as investors foresee higher inflation in the future as a result of a Trump presidency. The Dollar index hit 100 for the first time in almost a year after it rose by more than 1% this week. The 5 year and 10 year U.S. Treasury Notes now yield 1.84% and 2.36%, respectively.
  • The spot price of WTI Crude Oil fell 0.65% this week to close at $46.06 per barrel. WTI Crude is up 4.18% in 2016.
  • The spot price of Gold fell 2.01% this week, closing at $1,183.56 per ounce. Year to date, gold prices are up 11.54%.

Economic Data

  • Initial jobless claims came in at 251,000, an increase from last week’s reading of 235,000. The increase is likely due to a rebound from last week’s decline in claims caused by the Veteran’s Day holiday. The four week moving average for claims moved down to 251,000.
  • Existing home sales increased by 2.0% in October, better than consensus estimates of a     -0.6% decline. Sales of single family units increased by 2.3%, while multi-family unit sales were unchanged from the prior month.
  • New home sales declined by -1.9% in October, below consensus forecasts. Sales declined in the South, Midwest and Northeast regions while rising in the West region.

Fact of the Week

  • 32% of Millennials (defined as the 75 million Americans ages 19-35) are currently living with their parents. (Source: Pew Research Center)

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.

 

The Fixer-Upper Mortgage

Roger Legner, Vice President—Residential Lending legnerr_in0006qc

It seems like there is at least one in every neighborhood: a home in need of some TLC. Whether it’s a property that might have been neglected due to the foreclosure process, a property that was owned by someone who allowed the home to succumb to deferred maintenance or perhaps it’s your own property and in need of a facelift, the Federal Housing Administration (FHA) 203(k) Rehabilitation Mortgage was intended to provide financing in any of these situations.

203(k) Mortgage Programs: Standard and Limited (or Streamlined)

The two programs are open to both homeowners who want to refinance and buyers interested in fixing up a home.

Both programs:

  • Require the property to be owner occupied—they are not for investors who want to flip the home
  • Have low-down-payment requirements (3.5%) and, even then, the money may be gifted to the applicant
  • Are underwritten to standard FHA credit and income guidelines
  • Can be combined with any other FHA program available that the borrower may qualify for

The standard version of the 203(k) loan is used for more substantial repairs. These include things like moving walls, adding a room or repairing structural damage, in addition to cosmetic repairs. Essentially, this loan covers restoration that will exceed $35,000.

The limited, or streamlined, program is used for more basic repairs, such as replacing or fixing a roof or furnace, replacing windows, remediating mold or lead-based paint, purchase and installation of appliances, finishing a basement or improving accessibility for disabled inhabitants, etc. It’s limited to a maximum of $35,000.00 of repairs (including contingency reserve).

Since the purpose of both loan programs is to rehabilitate homes, the mortgage proceeds cannot be used to add luxuries like a pool or new outdoor kitchen, for example.

Go in With Open Eyes and Good Estimates

When using a 203(k) loan to purchase a home in need of repair, you are well-advised to walk through the property with a licensed contractor before submitting an offer. This helps ensure all the necessary repairs are accounted for and priced into your offer. It also helps to pay close attention during the appraisal and inspection phases of the purchase as well.

The program also requires borrowers to have licensed contractors bid on the work to be done. This is not a loan program for do-it-yourselfers.

Get Fixed Up Here

“Fixer-upper loans,” as 203(k) loans are sometimes called, are not a standard product. Many banks do not offer them, because they are quite a bit more complicated to close than conventional or standard FHA mortgages.

As a community bank, we have participated in the 203(k) program for years. We see it as another way to help our communities continue thriving while supporting homeowners and properties in need of a little extra TLC. We’d be happy to discuss the specifics of this program with you

When it comes to home-related financing, you can count on us to find a solution that fits your needs and helps you move on and into the home of your dreams. Contact me, Roger Legner, at 815-361-6469 or visit us online where you can begin your mortgage application right away, if you prefer. We can’t wait to talk to you about what we can do for you today.

Presidential Transition: Wealth Economic Update Nov. 21, 2016

U.S. and World News

  • washington_dc-486225108_360President-elect Donald Trump has offered retired Lt. Gen. Michael Flynn the National Security Advisor role. Lt. Gen. Michael Flynn is the former head of the Defense Intelligence Agency and was Trump’s top national security advisor during his campaign. Donald Trump also agreed to cooperate with Vladimir Putin to “tackle international terrorism” after the two discussed the matters by telephone on Monday. An unexpected meeting between Mitt Romney and Donald Trump will take place this weekend regarding the Secretary of State position. SEC Chairman Mary Jo White plans to step down at the end of President Obama’s term and a Republican-appointed leader will assume the role which is expected to result in less regulation on Wall Street.
  • Fed Chair Janet Yellen hinted that the FOMC is on course to raise rates in December and that uncertainty related to the election would not influence the decision. Janet Yellen stated that a rate increase “could well become appropriate relatively soon” and that recent economic data has shown that the economy is “making very good progress”.

Markets

  • This week the S&P 500 increased 0.89% and closed at 2,182. The Dow Jones rose 0.26% and closed at 18,868. So far in 2016, the S&P is up 8.74% and the Dow is up 9.10%.
  • Interest rates increased significantly higher once again this week as investors foresee higher inflation in the future as a result of a Trump presidency. The Dollar index hit 100 for the first time in almost a year after it rose by more than 1% this week. The 5 year and 10 year U.S. Treasury Notes now yield 1.79% and 2.35%, respectively.
  • The spot price of WTI Crude Oil increased by 4.98% this week to close at $45.57 per barrel. WTI Crude is up 3.97% in 2016.
  • The spot price of Gold fell 1.55% this week, closing at $1,208.64 per ounce. Year to date, gold prices are up 13.90%. 

Economic Data

  • Initial jobless claims came in at 235,000, a decrease from last week’s reading of 254,000 and the lowest level since the early 1970’s. The largest declines were in California, Missouri, and Illinois. The four week moving average for claims moved down to 253,000.
  • Housing starts rose 25.5% in October, which was the largest increase since July of 1982 and significantly higher than expectations of a 10.4% increase. The multifamily home starts increased by 68.8% and single family starts increased by 10.7%.
  • Retail sales increased by 0.8% in October which was above consensus expectations of a 0.5% gain. Core retail sales (excluding autos, gas, and building materials) was also up 0.8% versus consensus expectations of a 0.4% increase.
  • The consumer price index (CPI) gained 0.4% in October and 1.6% from one year ago, which was in line with expectations, and heightened by higher energy prices. The core CPI (excluding food and energy) rose by 0.15% in October versus expectations of 0.2% and increased 2.17% from one year ago. 

Fact of the Week

  • A child born in 2016 that begins kindergarten in the fall of 2021 would attend college between the years of 2034 and 2038. If that child attended an average private 4-year college and if the annual price increases for private colleges experienced over the last 30 years (+5.2% per year) continued into the future, the aggregate 4-year cost of the child’s college education (including tuition, fees, room & board) would total $490,502 or $122,625 per year (source: College Board).

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.

 

Election 2016: Wealth Economic Update Nov. 13, 2016

U.S. and World News

  • 2016election_360Donald Trump has been elected the 45th president of the United States, defeating Democratic nominee Hillary Clinton. Markets initially reacted in an extreme manner to the downside in the premarket session as this result was not expected or priced in. The downturn was short-lived however, as markets turned solidly green the day following the election and continued its upward momentum through the end of the week.
  • In addition to Trump’s victory, the Republican Party was able to secure majorities in both the House and Senate. This will mark the first time that the Republican Party has held the Presidency and both houses of Congress since George W. Bush took office in 2001. Control of both the House and Senate will give the Republican Party greater freedom to implement its policy platform which stands for less regulation of banks and a repeal of Obamacare.
  • Potential scandal has returned to Brazil after evidence surfaced that new president Michel Temer may have accepted bribes from a construction company. This comes shortly after the impeachment of former president Dilma Rousseff for her role in using illegal loans from state banks to hide the fragile state of Brazil’s finances during her re-election bid in 2014. If the court rules that Temer did accept bribes, he could be removed from office.

Markets

  • This week the S&P 500 rallied 3.87% and closed at 2,164. The Dow Jones rose 5.51% to close at an ALL-TIME HIGH of 18,848. So far in 2016, the S&P is up 7.80% and the Dow is up 10.50%.
  • Interest rates surged higher this week following the results of the U.S. Presidential Election. The 5 year and 10 year U.S. Treasury Notes now yield 1.56% and 2.15%, respectively.
  • The spot price of WTI Crude Oil was down 1.95% this week to close at $43.21 per barrel. WTI Crude is up 7.89% in 2016.
  • The spot price of Gold fell 6.07% this week, closing at $1,225.90 per ounce. Year to date, gold prices are up 15.53%.

Economic Data

  • Initial jobless claims came in at 254,000, a decrease from last week’s reading of 265,000. The Labor Department noted no distortions to the data this week. The four week moving average for claims moved up to 260,000.
  • The University of Michigan consumer sentiment index rose to 91.6 in the November estimate, better than consensus expectations. Both consumers’ future expectations and their assessment of current economic conditions rose during the period. All of the data collected was prior to the U.S. Presidential Election.

Fact of the Week

  • The S&P 500 has now correctly predicted 20 of the past 23 presidential election winners going back to 1928 and every election since 1984. This is based on the three month returns for stocks leading up to the election. If the stock market index is higher in the three month period before the election, it’s a predictor that the incumbent party (in this case Democratic) wins the Presidency and vice versa. The S&P 500 fell -1.9% in the three months leading up to Tuesday’s election, thus continuing the trend as the incumbent party was defeated. (Source: Strategas Research Partners)

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.

 

5 Life Events That Benefit From Financial Planning

Kathy Diedrick, First Vice President—Retail diedrick

As you write your life story, there are likely to be chapters that completely change the direction of your narrative. Coincidently, these plot twists often come with financial implications. Getting advice at these points isn’t just helpful, it may be rewarding.

A 2010 study found that people who get advice regularly before making major decisions related to money end up with more financial assets than those who go it alone. So, when would seeking financial advice help?

Here are some of the bigger turning points in life, when some guidance can make all the difference.

Your first full-time job. For many, the thrill of a regular paycheck comes from knowing you don’t have to ask permission—it’s your money to spend as you please. But, before you do, it’s a good idea to take a breath, step back and add up what you need to spend each month. Then, think about what you want to spend on the things you do or buy for enjoyment.

It’s also a good idea to get in the habit of shaving off a little bit from each paycheck to start saving for the things you are going to want, like an annual vacation, getting an advanced degree, upgrading your car, owning your own home and, ultimately, retiring.

Talking to an advisor about the best options for living today while saving for tomorrow can help you get off to a good start. Making use of spending tools also helps.

You found the ONE! Making a commitment to share your life is huge, whether you find that person early in your adulthood or later on. It also means that when you start to live life as part of a couple, you should start spending, saving and planning as one. An advisor can help facilitate that transition by advising you on how to jointly own and hold title to your accounts and assets. They can also work with you to set up new savings goals. Calculators like this one can also help you keep track of things as your finances become more diverse.

Buying your first home. While you save for a down payment, you may want to work with an advisor—as well as a mortgage expert—to determine how much house you can afford and if there is a need to address your current debt and credit scores before applying for a mortgage.

Children change everything. From what you spend your money on to what you care about, when you start adding family members, it’s time to reevaluate. For many new parents, saving for college becomes an important goal. While our college savings calculator can help you set a target, an advisor can help you choose the right goal and savings method for your budget, along with a mix of appropriate investments.

Preretirement. The time to consider your plan for retirement is when you’re still working. This way you can make necessary adjustments before locking into any decisions. This tends to be the point in most people’s lives where they really want to meet more regularly with an advisor to make sure their savings are sufficient and their investment allocation makes sense.

No matter where you are in your life, we have the accounts, tools and individuals to support you on your financial journey. Contact us at 1-877-866-0202 to see how we can help. And, feel free to make use of our many financial tools along the way. We’re always happy to talk to you about what you want to do next.

Election: Special Wealth Management Update Nov. 9, 2016

usa_360

U.S. voters have spoken, and despite the popular vote favoring Democratic candidate Hillary Clinton, the Republican nominee Donald Trump secured an unexpected electoral victory reminiscent of the 2000 Presidential Election. While there may not be any “hanging chads” there are sure to be many “hanging pollsters” in the aftermath of this result. Online markets predicted an 85% chance of a Clinton win while Nate Silver’s FiveThirtyEight.com forecast Clinton as a 71% favorite in his final prediction.  As it became apparent that the Republican nominee was going to be competitive through the “rust belt”, uncertainty was introduced to the markets.

Foreign markets began trading on this uncertainty with the Nikkei Index closing down 5.36% and the Hang Seng Index off 2.16%.   Aftermarket traders began moving U.S. futures significantly into the red with the Dow Jones Futures trading down by over 800 points.  As the election results rolled in and electoral votes continued to stack up in favor of Donald Trump, the markets began to more efficiently price the outcome.  With markets stabilizing, European markets were pricing in an increase of 1% for the FTSE index and 1.5% for the DAX and the Dow Jones Futures moving back to pre-election levels.

While the results of the election were certainly a surprise, it was not outside of the scope of possible outcomes.  On the heels of the United Kingdom voting in favor of “Brexit” when polling data pointed toward a “Remain” outcome, the potential for a “Closet Trump Vote” was in the cards.  While the initial surprise rattled market expectations, investors quickly processed the information and markets recovered.

We at Old Second Wealth Management  focus on long term investing, and market volatility predicated from binary events often create opportunity to invest.  Additionally, the changing landscape of Washington may create further opportunities or challenges within the investment markets.  If you have any questions or concerns, please do not hesitate to reach out to you Old Second Relationship Manager or Investment Officer.

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.

 

Rates, Emails, Cubs: Wealth Economic Update Nov. 7, 2016

U.S. and World News

  • On Wednesday, the Fed decided not to make any interest rate changes, nor did they make it clear that there would be a rate increase next month. However, in the post-meeting statements they did cite that the case for an increase “continued to strengthen”. The market currently is strongly anticipating a rate increase in December.
  • email_34506084_360FBI Director James Comey announced that potentially incriminating emails were discovered on ex-Democratic Congressman Anthony Weiner’s laptop. Federal investigators issued a search warrant to investigate all emails related to Hillary Clinton’s private email server. This has caused the polls to come very close going into the election Tuesday. Subsequent to his original letter to Congress stating the FBI would examine the emails, Mr. Comey announced “Based on our review, we have not changed our conclusions that we expressed in July with respect to Secretary Clinton.”

Markets                     

  • This week the S&P 500 dropped 1.89% and closed at 2,085. The Dow Jones fell 1.47% and closed at 17,888. So far in 2016, the S&P is up 3.88% and the Dow is up 4.91%.
  • Interest rates decreased this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.23% and 1.78%, respectively.
  • The spot price of WTI Crude Oil was down 9.49% this week to close at $44.11 per barrel. WTI Crude is up 19.10% in 2016.
  • The spot price of Gold rose 2.31% this week, closing at $1,304.91 per ounce. Year to date, gold prices are up 22.98%.

Economic Data

  • Initial jobless claims came in at 265,000, an increase from last week’s reading of 258,000. The Labor Department noted that the increase was mostly from Missouri and Kentucky where there has been temporary auto plant shutdowns. The four week moving average for claims moved up to 258,000.
  • The U.S. added 161,000 jobs during the month of October which was slightly less than expected and previous months were revised up. The unemployment rate moved to 4.9% from 5%. The average hourly earnings rate rose 0.4% which was slightly more than expected and the year-over-year rate is now at 2.8% which is a new cyclical high.
  • The PCE price index increased 0.21% month-over-month and 1.2% year-over-year which was in line with estimates.
  • The ISM manufacturing index increased to 51.9 in October which was slightly better than expectations. The ISM report indicates that the domestic manufacturing sector continues to expand at a moderate pace.

Fact of the Week

  • The Chicago Cubs have won the World Series for the first time since October of 1908 when:
    • Only 46 states existed
    • The Ford Model T was just invented
    • Wrigley Field had not yet been built
    • The FBI was established
  • Wednesday night, Dexter Fowler was the first player ever to hit a leadoff home run in a game 7 World Series game

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.

 

Greek reforms: Wealth Economic Update Oct 31, 2016

U.S. and World News

  • greece_52645812_360Eurozone officials have approved a €2.8 billion tranche of financial aid for Greece after the debt-laden country delivered the needed economic reforms to unlock the latest round of cash. The reforms included progress in pension restructuring, bank governance and revenue collection. So far, Greece has received €31.7 billion of its €86 bailout granted in July 2015, its third bailout since 2010.
  • The People’s Bank of China is making changes to its Macro Prudential Assessment risk program to broaden its regulatory oversight to include wealth management products sold by banks and not counted on their balance sheets. The move marks another step in the PBOC’s efforts to control rising leverage in China’s financial system and highlights the worries that many have that unsustainable debt levels could derail an already slowing economy.

Markets

  • This week the S&P 500 dropped 0.67% and closed at 2,126. The Dow Jones rose 0.09% and closed at 18,161. So far in 2016, the S&P is up 5.81% and the Dow is up 6.37%.
  • Interest rates climbed higher this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.33% and 1.85%, respectively.
  • The spot price of WTI Crude Oil was down 4.35% this week to close at $48.64 per barrel. WTI Crude is up 21.45% in 2016.
  • The spot price of Gold rose 0.71% this week, closing at $1,275.47 per ounce. Year to date, gold prices are up 20.20%.

 Economic Data

  • Initial jobless claims came in at 258,000, a decrease from last week’s reading of 260,000. The Labor Department noted that claims may have been distorted by a bounce back from the effects of Hurricane Matthew which led to closures of filing offices in affected regions in previous weeks. The four week moving average for claims moved up to 253,000.
  • The Case-Shiller home price index showed an increase of 0.2% for August, more than consensus expectations of 0.1%. Of the 20 cities included in the index, 15 showed higher prices in the month. Over the last 12 months, home prices have risen 5.1% as measured by the index.
  • Real Gross Domestic Product rose 2.9% (annualized) during the 3rd quarter, beating expectations of 2.6% growth.
  • The Employment Cost Index (ECI, measure of wage growth) increased by 0.6% in the 3rd quarter, in line with expectations. On a year over year basis, total compensation has risen by 2.2%

Fact of the Week

  • The U.S. economy has been growing for the last 87 months (ie. no recession), an expansion exceeded in length only 3 times since 1900. (Source: National Bureau of Economic Research)

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.

 

Terms of Confusion: Straight Talk About Mortgages

Steve Weber, Executive Vice President—Residential Lending fullsizerender

It’s not you— it’s us, and we apologize. When it comes to talking about home loans, we sometimes forget that not everyone speaks the language of mortgages.

What sounds like code to you, often is—frequently it’s legal code. From 203 (k) loans to TRID, the mortgage process is riddled with references to the legal statures that lead to certain provisions, requirements or types of loan structures. To cope, we just start talking in shorthand. 

Deciphering Our Acronyms

Some of the most used terms within the industry are the hardest to understand. It’s not intentional. We just forget that we can lose you in the acronyms if you aren’t familiar with the language.

For instance…

APR (Annual Percentage Rate)

This is the total yearly cost of your mortgage, which is stated as a percentage of your loan’s amount. APR is not the same as your interest rate. The interest rate just refers to one expense. APR includes the cost of mortgage insurance (if you are paying it) and the loan origination fee or any points you paid. When you compare mortgage programs—or lenders’ rates—APR provides you with an apples-to-apples comparison to determine what will be most cost effective for you.

DTI (Debt-to-Income Ratio)

DTI is a key determinant in mortgage lending. We calculate it for every application. It’s used to qualify you for a mortgage by comparing your total monthly housing expense plus what you pay on your other debt obligations to the total amount of money you have coming in each month. The lower the DTI, the easier it will be for you to afford the mortgage amount you seek and typically, the easier it is for us to approve the request.

PMI (Private Mortgage Insurance)

Just for the record, PMI—which is also referred to as MIP under some loan programs—is the fee you pay if you buy a home with a down payment that is less than 20 percent of the purchase price, under most loan programs. The insurance is not on you, or your home, but on your ability to pay. What that means is that when a person puts down less than 20 percent, the loan is considered riskier for the lender. More risk means the higher the interest rate you are likely to be charged. But, mortgage insurance guarantees that the lender, or whoever ultimately holds your loan, will be paid even if the loan defaults. It also enables us to offer better terms than if you were to borrow without it.

These are just a few of the many terms and abbreviations that may crop up in a conversation during the mortgage application and approval process. As they do, please stop your lender. Call us out on our “secret” language and have us explain what we are talking about in plain terms. It’s your money and your home. You deserve explanations of the terms and conditions related to financing it.

When it comes to home loans, you can find your answers here. Contact us at 877-966-0202 with your questions or if you need an immediate definition, visit our online Mortgage Glossary. We can’t wait to talk to you about what we can do for you today.

EU/Saudi bonds: Wealth Economic Update Oct 24, 2016

U.S. and World News

  • The European Central Bank elected to take no further action following their policy meeting this week, disappointing investors who had hope for further clarification on the central bank’s plan of action. At a news conference, ECB President Mario Draghi said that policy maker’s hadn’t even discussed whether to extend its €80 billion per moth bond-purchase program which is due to end in March 2017.
  • saudi_arabia_riyhad_66106939_340Saudi Arabia tapped the global debt markets for the first time this week, selling $17.5 billion in sovereign bonds. The bond issue had high demand as banks and investors flocked to buy debt issued by the emerging market country. In fact, it’s reported that the country received orders totaling $67 billion. The sale of bonds is part of the Saudi’s plan to open up its $650 billion economy to global investment and reduce its over-reliance on oil in the face of lower prices.

Markets

  • This week the S&P 500 rose 0.41% and closed at 2,141. The Dow Jones rose 0.09% and closed at 18,146. So far in 2016, the S&P is up 6.52% and the Dow is up 6.28%.
  • Interest rates edged down slightly this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.24% and 1.74%, respectively.
  • The spot price of WTI Crude Oil was up 0.39% this week to close at $50.95 per barrel. WTI Crude is up 16.24% in 2016.
  • The spot price of Gold rose 1.23% this week, closing at $1,266.46 per ounce. Year to date, gold prices are up 19.35%.

Economic Data

  • Initial jobless claims came in at 260,000, an increase from last week’s reading of 246,000. The Labor Department noted that claims may have been distorted by a bounce back from the effects of Hurricane Matthew which led to closures of filing offices in affected regions in previous weeks. The four week moving average for claims moved up to 251,750.
  • The headline Consumer Price Index rose 0.3% in September, in line with expectations. This was boosted by a 2.9% increase in energy prices. Over the last year, headline prices have risen 1.5%.
    • Core CPI (excludes food and energy) rose 0.1% in September, below estimates of 0.2%. Over the last 12 months, Core prices are up 2.2%.
  • Housing starts declined -9.0% in September, substantially missing expectations of a 2.8% gain. The composition of the housing starts was less negative than indicated by the headline figure as the more volatile multifamily category declined 38.0% in the month while more stable single family home starts rose by 8.2%.
  • Existing home sales increased by 3.2% in September, beating expectations of a 0.4% increase. September saw a 4.1% increase in single family starts which more than offset the -3.2% decline in the volatile multi-family home sales category.

Fact of the Week

  • American families in the bottom 50% of pre-tax household income are expected to receive 17.7% of national income in 2017. American families in the top 1% of pre-tax household income are expected to receive 15.4% national income in 2017. (Source: Treasury Department)

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.