Is a Home Equity Line of Credit Right for You?

Jackie Link, Branch Manager—Sugar Grove (NMLS# 996284)

Unless you’ve bought or sold your home recently or know someone in your area who has, you may be pleasantly surprised by its current market value. In fact, selling prices have been on a multiyear rise.

While the added appreciation in home equity is nice, it also means you may have additional borrowing power. That’s something you may want to gain access to through a home equity line of credit. (HELOC).

How a HELOC Works

A HELOC is a tool that allows homeowners to borrow a percentage (typically 70%- 90%) of the difference between the amount they have outstanding on their mortgage—if they have one—and the current market value of their home. As a revolving line of credit, it bears resemblance to a credit card but with a much higher borrowing limit.

Unlike most credit cards, the interest rate you are charged on a HELOC is lower since the line is secured by a home. For most homeowners, the interest is typically tax deductible, making it even more cost effective. However, you will want to verify with your own tax professional to make sure you qualify to take this deduction.

The rate on a HELOC will vary with the general level of interest rates. At Old Second, we use the U.S. Prime Rate as our benchmark and then add a fixed-margin rate to that, based on your financial information. We make the process easy and walk you through every step.

Although HELOCs are offered on a variable-rate basis, our clients can always switch to a fixed-rate option if they are concerned interest rates will rise. Instead of having the flexibility of paying only interest each month, payments under the fixed-rate option will include a specific amount of principal as well.

While different lenders offer different structures, Old Second’s HELOC provides 10 years of access. You can borrow and repay as often as you want during that time. If the line isn’t renewed after 10 years, it converts into a loan with a 20-year repayment plan, behaving like a second mortgage.

Qualifying for a HELOC is like qualifying for a mortgage, though a little less intense. There are no upfront fees and we charge a $50 annual fee (with the first year waived) as long as it remains open along with a pre-payment fee when applicable.

When to HELOC

As a personal cash management tool, you can access your line pretty much whenever you want by writing a check or calling to arrange a transfer. We see our clients using them to:

  • Spend before receiving, such as taking a vacation before receiving a year-end bonus.
  • Fund remodeling and home repair expenses.
  • Repay higher interest loans or credit card balances.
  • Cover large or unexpected expenses, from weddings and college tuition to replacing a car or paying medical bills.
  • Make a down payment on a vacation property.

Because HELOCs are both flexible and reusable, many homeowners take them out before they have an actual need. That way, they have a ready source of funding whenever the need arises.

To talk about how you might benefit from adding a HELOC to your financial toolkit, give us a call at 1-877-866-0202 or visit any Old Second Bank branch. Let’s talk about what we can do to help you achieve your goals.

What First-Time Home Buyers Need to Know Today

Jocelyn Retz, 1st Vice President—Home Loans jretz

There’s a first time for everything. When it comes to home buying, having a resource who can show you the ropes and guide you through your financing options isn’t just helpful—it can save you money.

You Have Options…Lots of Options

First-timers have choices. Each of the mortgage programs serving first-time home buyers in our area have different terms, benefits and uses. Some are more appropriate for new construction, while others can provide added benefits if you are buying a fixer-upper.

Probably the most familiar option is the Federal Housing Administration FHA mortgage. These often have less stringent standards than most conventional lending programs. However, not all homes will qualify. While FHA-insured loans used to be the choice for those seeking to make a low down payment (with a 3.5 percent minimum), some conventional loans now offer an even lower down payment option for borrowers with good credit at just 3 percent.

Veterans have access to even more flexible programs with no down payment requirement. The further away you are from the Chicago Metropolitan area, the likelihood increases that you may be able to borrow through the United States Department of Agriculture (USDA), which offers another zero percent down payment program with attractive terms for those settling down in rural areas.

The State of Illinois, through the Illinois Housing Development Authority (IHDA), is another source of financing for first-time home buyers who work with Old Second. Its 1ST Home Illinois mortgage offers generous down payment assistance to working class families.

While a lot of buyers today look to their friends and family members for advice, the features and requirements of some of the better known mortgage programs have changed recently. By working directly with a community-based lender who participates in a wide variety of programs—not every lender does—you can make a more informed decision about what would be most advantageous for your financial situation. In particular, you can find out how much it will cost you over time.

Don’t Just Get a Mortgage—Get Advice

While many lenders now take applications online and communicate via text and email—Old Second included—having a person to talk to as your application makes its way through the review process can help you understand how it works and what additional requests for information mean. That said, the mortgage process isn’t as complicated as most people think. Compared to what borrowers go through to receive and repay a student loan, for instance, this can be much simpler.

Many of the conventional mortgages Old Second makes continue to be serviced by us after they close. Some clients find it reassuring that after the effort they make to choose the right lender, they will have an ongoing relationship with that same lender over the life of their loan. That is not typical outside of a community-based bank. However, the way we see it, our reputation as a bank, as employees and your neighbors is on the line when we work with you. We want to be there for you from the beginning of the process through your closing—and for the party to celebrate your paid-off mortgage!

For more information on how we work with our first-time home buyers, visit us here or call 1-877-966-0202. We can’t wait to talk to you about what we can do to help you succeed with your first big move.

 

How to Prepare for the Spring Home-Buying Season

William Schumann, 1st Vice President—Mortgage Sales 

William Schumann, First Vice President, Head of Mortgage Sales

William Schumann, First Vice President, Head of Mortgage Sales

Ready to make your move? Whether you are trading up, downsizing or taking your first plunge into home ownership, preparation makes for a more efficient process and, ultimately, more livable results. What you’re preparing for is more than a financial transaction—it’s a purchase that will influence your overall lifestyle.

Choose a Neighborhood

A good real estate agent can help you understand what a neighborhood offers and how it might match up with your lifestyle preferences. There are also a variety of apps you can download to help you get acquainted with an area’s walkability, its schools, and how well it will serve your daily needs.

Determine What “Home” Looks Like

Once you decide where you want to look, consider the type of home you are looking for. Many online listings now have walk-through videos to provide previews. Although, until you start walking through homes, knowing what will feel comfortable may be hard to gauge, especially if this is your first purchase.

Find Your Financial Comfort Zone

Once you develop a feel for your preferences, it’s time to start thinking about what you are comfortable with financially. You should consider where you are today, given your current income and debt levels, and where you expect to be in a few years.

For an approximate idea of what will be affordable, you can take a DIY approach and use the calculators that banks like ours offer to help you run the numbers. However, it’s typically more helpful to sit down and talk to a banker. A banker can also prequalify you, which will improve your understanding of how much of a mortgage you can comfortably afford, giving consideration to both the monthly payment as well as the total loan amount.

Speaking with a mortgage professional also alerts you to any programs you may qualify for. Currently, there are programs with special incentives for first-time buyers. There are also programs that make buying a property that will need immediate fixing up more affordable.

Spring Ahead

Spring is considered the kickoff to the home-buying season. This year, however, there is some incentive for starting to prep for buying a bit earlier.

Recently, mortgage rates increased. The rise was not dramatic, and though additional increases are anticipated in 2017, mortgage rates are expected to remain at the low end of their historical range. However, each increase adds to the cost of buying.

Another reason to start preparing now is that home values in many areas have recovered to their prerecession levels. Realtor.com forecasts that prices in our area could rise another 1.95 percent this year.[1]

For more information on how we can help you prepare for your home purchase, visit us here or call 1-877-966-0202. We can’t wait to talk to you about what we can do to help you make your next move.

Sources:

[1] Joe Kirchner, “Realtor.com®2017 National Housing Forecast,” Realtor.com, posted Nov. 30, 2016, retrieved Jan. 4, 2017.

 

 

5 Things to Consider When Deciding If a Wealth Advisor Is Right for You

Rich Gartelmann, CFP®, Senior Vice President/Senior Investment Officer—Wealth Management

Rich Gartlemann Bio PictureChoosing an investment advisor, like so many things in life, is all about finding a comfortable fit. If the relationship is going to work, you have to be comfortable not only with the person, but the company they represent and the approach they take to making recommendations and decisions regarding your future.

Taking Measure
Here are five things to keep in mind when evaluating an advisor to determine if they are a good match for you.

  1. Who does more talking in the meeting? Your meetings, especially the first meeting, should mainly be about you, not an advisor’s services and products. The advisor should be focused on listening to you talk about your goals for your money, your attitudes toward risk and your current needs. Only then can they know what services and products they should be discussing with you.
  2. How are they paid? When it comes to fees, it shouldn’t be about finding the lowest fee option but about finding the advisory relationship that provides you with the greatest value. That value should be a combination of good advice, a full range of services and the potential for achieving the long-term results you seek. For instance, wealth management departments like ours are fee based.
  3. How responsive is their approach to change? Automated advisor platforms are becoming more and more popular. They are certainly more economical. But, they are programed based on averages and logic. Your life is probably not average. It’s likely to be highly dynamic with unexpected events and expenses. When life doesn’t go as planned, it helps to be able to talk to a person who can advise you on how to make adjustments while keeping you on track for your reaching your goals.
  4. What are their qualifications? Many wealth managers—ours included—have earned the Certified Financial Planner (CFP®) designation. The designation is awarded after the completion of a rigorous certification process. To retain the certification, CFP®s have to meet ongoing education requirements. But, before handing your personal information over to anyone, no matter how many designations they have after their name, you should still follow a “trust but verify” policy. Find out if they have ever been disciplined for unethical or unlawful behavior. The Financial Industry Regulatory Authority (FINRA) makes checking backgrounds easy through its online source, BrokerCheck. You can also look up registered investment advisers—those registered with the SEC or the state’s regulatory authorities here.
  5. Are they willing to provide a preview? To get a feel for what your experience would be like if you were a client, ask the advisor about how often and under what circumstances you’ll hear from them. Also, ask how they communicate—is it by phone, email or will they text you for a quicker response? Then, request referrals from current clients and talk to them about what they like and wish would improve about their relationship.

In the end, hiring an advisor is a lot like hiring an employee—their qualifications, attitude and work ethic need to match yours for a long and successful relationship to flourish.

For more information on how we approach and deliver wealth management services, visit us here or call 630-906-2000. We can’t wait to talk to you about what we can do for you today.