Tips for Keeping Your Financial Resolutions

Joseph Huml, Vice President/Retail Regional Manager huml_portrait

Whether you are among the 41 percent of Americans who typically head into the new year equipped with a list of resolutions or are among those who just want to get your finances in shape, knowing how to move the dial from intent to progress can be tough.[1]

Here are some tips to help you succeed in boosting your financial health in 2017.

  1. Conduct a credit cleanup. Sometimes it helps to clear the slate by consolidating high-interest debt into lower rate loans. Homeowners, in particular, often find financial relief—along with financing for home repairs or unexpected expenses—by using a home equity line of credit (HELOC). Not only is the interest rate on this type of debt more affordable than other types of personal loans, the interest you pay may also be tax deductible.
  1. Join the club. To avoid feeling overextended by holiday spending next January, open a Club Savings Account this January. Arrange to have a small amount ($10–$25) transferred from your checking account with each paycheck. In late November, the accumulated amount will be transferred back into your checking account just in time for you to start shopping for the 2017 holiday season.
  1. Get more than credit. Compare the rates and rewards you receive on your current credit card to see if there are more attractive deals out there. Also, with many issuers offering attractive introductory rates for new accounts, moving your outstanding balances could potentially save you money.
  1. Up your reserve. While having an emergency reserve equal to at least three months of your regular expenses is advisable, it can be hard to achieve. A more attainable goal is to try to build up your emergency reserve gradually. For instance, consider setting up an automatic deposit for a modest amount from each paycheck that will allow you to end up with an additional month’s worth of emergency reserve by year-end.
  1. Experiment with bursts of retirement savings. While it’s hard to hit the maximum contribution limit to your retirement savings account each month, try raising your contribution during the three months a year when your expenses are lighter. These short bursts can add up over time.
  1. Get a second opinion. Take advantage of free investment consultations when they are available. Sometimes, a banker can see a better way to save on fees or interest expenses and may be able to provide insights into ways of allocating your investments for expected market changes.
  1. Improve your score. Review your credit reports and scores at least annually. Since your score influences the interest rates you pay—and even employers and landlords look at them—it’s beneficial to make sure yours is as high as possible. When you review your credit reports, look for any errors or omissions. Pay attention to the timeliness of the payments you do make. Late payments and skipped payments are the biggest detractors to your score.

For more information on how we can help you keep up your resolve to improve your finances this year, visit us here or call 1-877-866-0202. We can’t wait to talk to you about what we can do to help you make this your best financial year yet.

The One Thing You Need to Know About Investing

Steve Meves, Senior Vice President/Chief Investment Officer, Wealth Managementmevess_bus009xqc

Investing is about using the money you’ve saved to purchase an asset that will hopefully appreciate over time. The key word in that last sentence is “time.” Giving your investments sufficient time to grow, regardless of what you are investing in, is the hard part. It’s also a key ingredient to building wealth.

Market Movements Are Noise

The financial markets go up and down, sometimes within the same day. But throughout history, they’ve kept climbing. The indexes we use to measure investment results—the Dow Jones Industrial Index and the S&P 500 Index—reflect this jagged climb. It’s this historical proof of resilience through wars, political mayhem and underperformance that allows professional wealth managers to remain calm in the face of sell-offs. They’ve seen the charts and looked at the data on market closes. And, they know that sell-offs end with recoveries. These recoveries may take time, but eventually they occur and have led to a resumption in the historical upward trend.

Go Long

The mistake many investors make is in assuming they need to do something when markets sell off. That’s only natural. It hurts to see your account balances decline, even if it’s a short-term occurrence. Our brains are hard wired to feel the pain of a loss—in this case money—more intensely than we feel the joy of a gain. It’s why we are intuitively risk averse. No one likes the way they feel when they lose.

When markets do sell off—whether during a day, over several weeks or even months—we all impulsively want to avoid further pain by selling. Some even want to anticipate the loss by selling before markets ever start selling off.

Taking evasive action may feel good in the short run, but it can destroy investment results in the long run, because you need to be right about the market continuing to go down when you are out of the market. More importantly, you also need to be in the market during its recoveries in order to benefit. It’s hard to know on any given day the kind of day it will be.

When Is the Right Time to Invest?

When you are an investor and take a long-term view, any time can be the right time depending on what you are investing in. Therefore, it’s advisable to have access to wealth managers who actively monitor markets daily to determine when it makes sense to pull back on investing in securities, or types of securities, and when to add more. It’s also our job to keep emotions like loss avoidance from endangering your overall goals so that your portfolio is diversified over different types of assets. That way, it’s better positioned to withstand volatility in any one type of asset.

In the end, the secret to successful investing is to remain focused on why you invest: to build wealth over time.

For more information on how our goal-driven wealth management services keep you on task over the long term, visit us here or call 630-801-2217. We can’t wait to talk to you about what we can do for you today.

 

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

A Different Way of Investing

Rich Gartelmann CFP® Senior Vice President/Head of Wealth ManagementRich Gartlemann Bio Picture

More often than not, when people talk about their investments, they talk about how well they did versus “the market” or about how much they gained in a single stock. The problem with measuring performance this way is that investing really isn’t like a sporting event where you keep score against an opponent. The only way you “win” is if you have enough money to achieve your financial goals. If you don’t, it won’t matter that your portfolio beat the S&P 500 Index for 10 years straight.

Focus on Results, Not Numbers  

When asked about their goals, often people will say, “I just want to have a million dollars by the time I retire.” That is a big round number, but is it enough? Too much? It depends on the type of retirement you want and the sources of income you’ll have available to support you.

Similarly, there are many investors who start selling stocks and buying bonds when they turn 65, because they believe that when they hit this age they need to invest conservatively. It may be the right action and, depending upon the current market condition, it may not even be a conservative move. Interest rate risks and rising inflation rates can devastate bond investments at certain points in an economic cycle.

If a person turning 65 today is in good health and still enjoys working, they are probably not ready to retire. Even if they are looking forward to retiring, they need to think about how to manage their assets in a way that will support them for another 30 years.

Match the Investments to the Timeframe

The trick to financial planning really isn’t the math as much as determining the journey. Think about where you are in your life and what you want to achieve next. Then, decide what you hope to achieve after that and, from a financial standpoint, what you wish to achieve in the long term.

The list will change over time, and it’ll be different for everyone. However, it may include things like:

  • Buy a home
  • Earn a graduate degree
  • Start a business
  • Pay for my children’s education
  • Pay off my home
  • Buy a family vacation home
  • Eat out whenever I want
  • Travel more
  • See every professional sports team play a game at home
  • Afford health care expenses
  • Avoid estate taxes for my family
  • Support charitable causes
  • Retire early
  • Just keep doing what I love and not retire

To know what you need to afford what you want requires adding some details to your goals and a timeframe. From there, your advisor can work with you to set a dollar goal and calculate how much you need to save to achieve it, if it is an expense. Your advisor can also help you decide how much you need to invest and how to invest your savings to create enough income to achieve ongoing goals, like retirement.

When it comes to investing, we focus less on the big numbers and more on helping you achieve big results.

For more information on how we approach and deliver goal-driven wealth management services, visit us here or call 630-844-5730. We can’t wait to talk to you about what we can do for you today.

 

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.

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.

5 Things Small Business Owners Should Know Before Applying for a Loan

Travis Andry, First Vice President—Commercial Lendingandry_travis_2012

Applying for a loan shouldn’t be intimidating. After all, banks are in the business of making loans. Finding a way to say “yes” is as high a priority for us as being approved is for you.

To help you focus your energy on what matters most in a loan request, here are five things to have in mind before applying.

  1. Your bottom line is more important than your top line.

Many small business owners focus their time and energy—and base their request—on top-line growth. While revenue growth is important, the financial strength of your business is measured based on your net profit. During a review, we spend much of our analysis understanding how revenue flows through your company. The reason is simple: we need to determine if there will be sufficient net income to repay any loan we might approve. But, we also look to see if another solution or a different type of financing is needed to address any cash flow issues.

  1. Don’t just say it; prove it.

While poor financial reporting isn’t a sign of a bad company, it can diminish your ability to document and support a loan request. Bankers need good information in order to understand how the business is really doing and how a loan may help. Before applying, it’s a good idea to make sure your inputs are correct and you can verify the numbers you’re submitting to us.

  1. “Why” is usually more important than “what.”

Often, clients will come in and say, “I need $50,000 for working capital.” But in the absence of additional information, what we hear is, “I have a funding shortfall.” Shortfalls occur, for example when a manufacturer has to pay for inventory and labor before ever shipping the finished goods or being paid. Often buyers take 90 days to pay. Covering shortfalls implies a different type of credit risk for us than a request for financing to replace a piece of equipment—or to add one—in order to improve efficiency.

If that is the purpose of the request, say so up front. In this instance especially, the gain in efficiencies is likely to create a savings that could help offset the increase in your financing expense. This would make it much easier to approve your request, which is why knowing the “why” is so important for us.

  1. Having a business plan is good, but it needn’t be a work of art.

Much is made of having a formal business plan before asking for a loan. It is a good idea, but bankers don’t need anything elaborate. It can be a bullet-pointed summary since a plan consists of projections, not facts. Although, plans do help us understand how you see your business growing.

  1. Bankers are more useful as advisors than adversaries.

While there are many online financing options that eliminate the need to make a face-to-face request, it’s ultimately more beneficial for a borrower to know—and be known—by a banker. Today’s loan request isn’t likely to be the only one you ever make on behalf of your company. It means you have a point of contact throughout the borrowing and repayment process and an advocate when you need to borrow again.

To learn more about how we work with you to build a sustainable relationship that can contribute to the growth of your business, contact me at 630-264-3004. You can also visit us here. We can’t wait to talk to you about what we can do for you today.

BusinessManager: The New Way to Unlock Liquidity

David Mottet, First Vice President—Commercial Lending

Let’s face it, when accounts receivable start to build, it’s usually a good problem to have. It’s a sign you are doing something right.David Mottet, First Vice President—Commercial Lending

But, you can face as much as a 90- to 120-day delay before you collect on your receivables. Meanwhile, you still have to replenish inventory, possibly expand the workforce and gear up to meet increasing customer demand. This is what makes maintaining liquidity so tricky.

This is also why we are excited about having a new solution to offer you: BusinessManager. It’s an online program accessible directly from anywhere you have Internet access. It can help keep your sales growing without the financial hiccups since it enables you to convert your receivables into cash. That cash is then deposited to your account on a next-day basis. But unlike a traditional receivables-based line of credit, the advance rate under the BusinessManager program is up to 90 percent.

How it works
You simply enter the pertinent data from your invoices into the Web-based software. Once added to the system, the receivables are then automatically tracked and aged until they are paid by your customers.

The advance your firm receives is also calculated automatically and made next day through a deposit to your Old Second checking account.

Because of the tracking component, receivables reports are generated for you on an ongoing basis. The system is compatible with most popular accounting software programs, making integration into your operations fairly straightforward. The collection of your receivables is then made through a lockbox service managed at the bank.

BusinessManagerClick here to view our BusinessManager Infographic.

Positive cash flow with benefits
As an accounting tool, BusinessManager does more than simplify the process of accounts receivable-based borrowing. It speeds the process to create a quicker turnover ratio.

It also means that in addition to the improved cash flow and the freeing up of your staff’s time for other activities, you are better positioned to capitalize on new business opportunities. With access to cash, you can also take full advantage of supplier discounts when paying your expenses to lower your own operating costs.

To get your receivables working harder for you, contact your lender to set up an appointment to learn more about BusinessManager and the other cash management strategies available at Old Second Bank.

The Mortgage Process: Back From the Future

David Kozuh, Vice President—Residential Lending

Things have changed. But, not in the way many potential borrowers think.

David Kozuh, Vice President—Residential Lending   Things have changed. But, not in the way many potential borrowers think. Many still think it’s harder to get a mortgage than it used to be. Not necessarily. Despite the Financial Crisis of 2007–2008, banks have been helping homebuyers and owners take advantage of the low interest-rate environment all along. Even Millennials, despite their student debt loads, have been getting approved for mortgages. It’s also still possible to get a mortgage with a down payment of less than 20%. And, first-time homebuyer programs that provide money for down payments may even make it a little easier to afford a new home than in 2008. What Has Changed Since the crisis, the process of applying for a loan has improved. Many lenders, Old Second included, have made initiating a loan request even easier, leveraging online and mobile technology for applications, document gathering and communication. But, the biggest change involves the way an application is now processed. It takes longer…much longer. What could be done inside of 30 days in 2008, may now take longer. No home loan lender is immune—we are all subject to the same regulations. And, it’s about to get a little worse. It’s Not You, It’s the New Federal Regulations Whether you are a first-time homebuyer or an experienced homeowner, in the aftermath of the financial crisis there has been a return to the kind of lending standards—operational checks and balances—that most of us have used to apply to loans for decades. Those standards require time to analyze and verify that each mortgage applicant is qualified for and entering into the right type of loan for their financial circumstances. As of Oct. 3, a new rule from the Consumer Financial Protection Bureau, “Know Before You Owe,” will take effect. It is intended to offer additional protection by ensuring you understand the terms and consequences of your loan agreement at closing. This new rule will add a few more days to the closing process for all mortgage lenders no matter how automated their internal processes are. While a degree of patience has re-entered the mortgage process, we believe it ultimately ensures that you’ll gain full advantage of our expertise. Whether it’s a 30-year fixed mortgage, an adjustable rate, a line of credit for remodeling or a refinancing into a 15-year loan that will help you retire mortgage-free, our goal is—as it’s always been—to make sure you enter into the right financing structure.

Many still think it’s harder to get a mortgage than it used to be. Not necessarily. Despite the Financial Crisis of 2007–2008, banks have been helping homebuyers and owners take advantage of the low interest-rate environment all along. Even Millennials, despite their student debt loads, have been getting approved for mortgages.

It’s also still possible to get a mortgage with a down payment of less than 20%. And, first-time homebuyer programs that provide money for down payments may even make it a little easier to afford a new home than in 2008.

What Has Changed
Since the crisis, the process of applying for a loan has improved. Many lenders, Old Second included, have made initiating a loan request even easier, leveraging online and mobile technology for applications, document gathering and communication.

But, the biggest change involves the way an application is now processed. It takes longer…much longer. What could be done inside of 30 days in 2008, may now take longer. No home loan lender is immune—we are all subject to the same regulations. And, it’s about to get a little worse.

It’s Not You, It’s the New Federal Regulations
Whether you are a first-time homebuyer or an experienced homeowner, in the aftermath of the financial crisis there has been a return to the kind of lending standards—operational checks and balances—that most of us have used to apply to loans for decades.

Those standards require time to analyze and verify that each mortgage applicant is qualified for and entering into the right type of loan for their financial circumstances.

As of Oct. 3, a new rule from the Consumer Financial Protection Bureau, “Know Before You Owe,” will take effect. It is intended to offer additional protection by ensuring you understand the terms and consequences of your loan agreement at closing. This new rule will add a few more days to the closing process for all mortgage lenders no matter how automated their internal processes are.

While a degree of patience has re-entered the mortgage process, we believe it ultimately ensures that you’ll gain full advantage of our expertise.

Whether it’s a 30-year fixed mortgage, an adjustable rate, a line of credit for remodeling or a refinancing into a 15-year loan that will help you retire mortgage-free, our goal is—as it’s always been—to make sure you enter into the right financing structure.

The Future of Banking Is Now

Keith Gottschalk, Chief Operating Officer

Keith Gottschalk, Chief Operating OfficerIt’s no secret: The pace of change in banking is speeding up. But where technology initially drove the changes leading to a better in-branch experience and more productive online activities, the application of that technology into easily downloadable apps for use on our phones and tablets has us crossing into a new frontier of convenience.

Faster, simpler, better, mobile.
As much as we look forward to seeing you in our branches during business hours, we know that isn’t necessarily where you’ll be when the need to bank occurs. This is why we continue to expand the ways you can conduct your banking activities—whenever, wherever and however you prefer.

For instance, unless you’ve been in the market for a loan recently, you may not know that O2 now accepts applications online for both mortgages and installment loans. Similarly, you can open new checking accounts without ever visiting a branch. We even offer you a person-to-person payment option that reduces the need to carry cash or your checkbook.

As we develop faster, simpler, better ways of serving you, we expect to add or enhance capabilities that will eventually include:

  • Kiosk banking, offering remote access to a teller located elsewhere (think Skype for banking)
  • The ability to use your cell phone as a debit card
  • A real-time transaction alert system to improve budgeting and security
  • Added functionality for ATMs for quicker crediting of deposits
  • The further streamlining of the lending process for even faster decisions

Ultimately, our goal is providing you with intuitive banking services, along with functions you can download through your preferred app store. The difference we intend to bring is providing these services and functions in one convenient, interconnected place—your community’s branch, both the physical version you visit and the mobile version you hold in your hand.

Scoring Credit: Play It Smart

Jackie Allison, First Vice President, Retail Services 

Jackie Allison, First Vice President, Retail ServicesWhether you are requesting credit in the form of a credit card, car loan, or a home mortgage, it literally pays to have a winning credit score. The higher your score, the less you will pay over the life of the loan.

Who’s Keeping Score?
There are three main credit reporting bureaus:

  • Experian
  • Equifax
  • TransUnion

Each collects information in a report that summarizes your financial history. The bureaus use this information to calculate your credit score. Those scores are used by potential lenders to see if you are a “good credit risk,” someone who will likely pay back what they borrow, as agreed.

What Affects a Score?
While each bureau uses a different formula, they look at the same factors:

  • Whether you pay your bills on time. A late payment once in a while may not be damaging, but a pattern of late or missed payments is.
  • The amount you have outstanding each month as a percentage of your available credit. A high percent outstanding actually can lower your score.
  • The number of new credit applications you’ve submitted recently. This can signal a concern to the potential lender that you are acquiring too much new debt too quickly.
  • Payment history. If you have been late on a payment, get the account current and stay current. This will help improve your credit score.
  • The extent of your borrowing history. To have a credit score, you need to have had credit and demonstrated you can repay it. A good way to start building your history may be to have a parent co-sign on a loan application when you start working or, if you are able to do so, apply for a CD-secured loan at OSNB.

Before you apply for credit, take a look at your reports. You may request a free report once every 12 months from each bureau. To request your free reports, visit AnnualCreditReport.com.

Question any inaccurate information. And, if you are a joint borrower, exchange reports before applying. It may make more sense for the person with the higher score to apply for the loan on their own to lower its overall cost to you both.

If you do have a low score or a limited credit history, talk to us. Your banker can make suggestions that may help you raise it and lower your future borrowing costs. Because when it comes to your credit score, it’s never too late to improve it. For additional information, visit the FDIC’s consumer protection page.