Fall is time to tap your home equity for improvements

Park State Bank logoBy Dale Lewis

We’ve officially entered fall, and it’s a great time to talk about borrowing.

A discussion about borrowing may not be on your fall to-do list, along with putting away the patio furniture, but better today than tomorrow.

The truth is that fall is a great time to consider borrowing through a home-equity loan to make improvements to your house before winter hits. A home that is in better shape with new windows, more insulation and an up-to-date furnace will save you money all winter—and actually all year long. That’s obvious.

But here’s the not-so-obvious part: These improvements aren’t just the kind that will provide benefits for a short while. They are long-term fixes that will pay dividends by keeping money in your pocket year after year, including long after the debt is paid.

That’s why it makes sense to tap what probably is your most significant long-term asset, your ownership stake in your home, to make them happen. If you can’t afford to pay for a new furnace or windows out of your savings or checkbook, and most of us can’t, it’s more than OK to consider taking out a loan backed by the value you have accumulated in your home.

It’s a smart financial decision to spend money that will allow you to save money—and especially if you can save money year after year. Those long-term savings will help you repay the loan. The improvement to your long-term asset, your home, also will allow you to get a higher price when you sell it.

What isn’t a good investment is making a long-term financial commitment for a short-term gain. That’s why, in most cases, I am highly skeptical of tapping home equity or other long-term options to pay for a vacation or to buy something like a snowmobile or ATV. I have nothing against these purchases. But how you finance them matters.

A long-term debt for long-term benefit? Absolutely. A long-term debt for short-term pleasure? Probably not. Call it Dale’s First Rule of Borrowing.

The same thinking applies to credit card debt. If you make purchases that provide short-term benefits, it’s probably best to pay with cash or your debit card, or to pay off the credit card balance before you start incurring interest charges. Save the credit card debt for financing bigger-ticket purchases that will provide benefits for some time, such as a new washing machine or refrigerator.

Borrow money only for as long as the purchase will last. So don’t be afraid to use long-term financing such as a home equity loan for purchases that provide long-term benefits. In fact, missing these opportunities can be harmful to your finances. What good is all that equity in your home if the drafty windows drain your bank account every winter by running up the heating bill?

My First Rule of Borrowing isn’t rocket science. But it’s a good rule to keep in mind, particularly as you’re wrestling with how to pay for what you want and whether to make major changes to improve the value of your home.

Consumer borrowing is part of the American experience. It’s how most all of us achieve the dream of home ownership. But shortsighted thinking about borrowing also has its costs and has created much trouble for us as individuals and as a society.

With fall officially here, it’s a great time to think about smart borrowing that actually can help you get ahead financially. It’s something to consider as you take in the patio furniture.

Dale Lewis is president and CEO of Park State Bank in Duluth. You can reach her at president@parkstatebank.com or 218-722-3500.

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Bank at a place that really knows your name

Park State Bank logoBy Dale Lewis

It’s a refrain commonly heard in business: We know our customers.

But how well do the places where you do business really know you? Even in the Twin Ports where “everybody knows your name,” it is still difficult to maintain the level of service that customers expect every day. Amid the focus on the bottom line, individual attention to customers often is compromised in efforts to be thorough and efficient. There is a temptation to lean on technology.

In the banking business, where technology has given all banks pretty much the same tools, we’re seeing the future as a return to a few of the values of the past. Knowing your customers, and knowing how to serve and protect them, has become a differentiator. It’s a quality you should insist on wherever and however you handle your money.

A recent study on the banking industry found that millennials—those who reached young adulthood around the year 2000—value convenience more than any other banking feature. That’s not surprising. People of all generations have gravitated to banks and other vendors that serve them on their terms.

But in an era of Internet fraud, identity theft and other high-tech dangers, banks more than ever must know their customers.

The same survey found that, after convenience, millennials valued security and fully-insured deposits as banking attributes. With a very few exceptions, these are qualities that most banks offer, though it’s not surprising that they consistently rank high on lists of what’s important.

But take a look at the qualities that came up next: Knowledgeable staff, friendly staff and longevity in business. All of these have a lot to do with customer service. Indeed, business longevity usually doesn’t happen if you don’t know your customers and treat them right.

Even the No. 2 attribute, security, has much more to it than government regulation and deposit insurance. Let me give you an example. At our bank, we watch customers’ accounts for safety reasons. We also regularly see our customers in the bank lobby and in our drive-up window. We know their businesses. We know their banking patterns and, to some degree, what’s happening in their lives. That’s our job as their bankers.

When we see something that doesn’t look right, we’re not afraid to say something. I’ve done that many times over the years. When I have, our customers have said they appreciate that we’re watching to make sure they’re safe.

Recently, we had a new customer tell us about her frustrations with another bank trying to resolve a credit card problem during an overseas trip. Getting a live person on the phone to set it straight was nearly impossible. That was one reason she changed banks.

With few exceptions, technology has been consumers’ friend. We’re able to do more, work faster and work on our own terms because of advances, driven largely by the Internet. But the people behind the technology still are important. They’re the ones who determine whether all of those technological advances really serve our needs.

A bank or online vendor that isn’t watching its transactions can be an open invitation to Internet fraud or identity theft. A bank or vendor that knows its customers and keeps an eye on their electronic transactions can catch a problem quickly or even before it happens, saving a customer weeks and months of hassle.

My advice when it comes to your banking and financial services is to think about the qualities you value most and then look a step or two beyond the obvious. Make sure there are people where you do business who stand behind the technology, keep an eye out for your safety and really mean it when they say they know you as a customer.

Dale Lewis is president and CEO of Park State Bank in Duluth. You can reach her at president@parkstatebank.com or 218-722-3500.

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Here’s how to guard against identity theft

Park State Bank logoBy Dale Lewis

Most of us, fortunately, have only heard of identity theft and never have experienced it. As a banker, I can tell you that it’s one of the scariest parts of life in the financial world, with nearly everything we own and how we do business at risk if we fall victim to identify thieves.

So the answer is to stay vigilant and take a few simple steps to try to ensure it won’t happen to you. Nothing, of course, is foolproof. But by making a few changes and incorporating safeguards into your daily financial activity, you can significantly reduce your risk of becoming a victim. Here are my suggestions:

  • Protect your secrets. Be extremely careful with your secret numbers and other confidential information, such as passwords, personal identification numbers and, of course, your Social Security number. These are the easy “front doors” to your identity that you must lock and guard as carefully as the front door to your home or business. Don’t share this information over the phone or online unless you know for sure that you are talking to a safe and secure vendor or financial institution. And if you’re in doubt, don’t share.
  • Monitor your accounts. While the Internet has ushered in many of the concerns associated with identity theft and electronic fraud, it also offers protections. With online access to bank and credit card statements, you can keep track of account activity in real time and quickly catch anything suspicious. Log in to your accounts frequently and regularly inspect what’s happening there.
  • Take charge of online payments. When you use online tools to pay bills or transfer money, stay in the driver’s seat. Most systems allow you to make transfers instead of having an outside party draw money from your account. It’s always safer when you’re making decisions about how much and when to move money out of your accounts. So stay in charge.
  • Protect your devices. Increasingly, our computers, tablets and phones are becoming our tools of commerce—even sometimes our wallets. So protect them with anti-virus software, regular operating software updates and password-protected security screens. When you finish a secure online transaction, make sure you log out before you put your device down.
  • Use one card for online transactions. With one credit card specifically designated for all your online purchases, you can keep a better eye on what you’re buying and make sure that nothing appearing on your statements was purchased by anyone else. It’s often hard to remember at the end of the statement period what exactly we bought. That is especially true for purchases online, where vendor names and locations often aren’t as familiar. Having one card for online purchases helps you organize your purchases. It also makes it easier to cancel the card if you suspect something is amiss.
  • Monitor your credit report. This isn’t a weekly or monthly activity. But at least once a year, order a free copy of your credit report to make sure that the story being told about you is accurate.
  • When in doubt, act. Don’t be shy about making a phone call or asking for help if you think your financial information or identify have been compromised. It’s better to act quickly, especially considering the speed at which identity theft and online fraud can escalate. Cancel a credit card and ask for another if you have concerns, or if a place where you shop reports a security breach. The minor hassle of taking fast action looks small, indeed, compared with the ordeal of dealing with a full-scale crisis.

Identify theft and online fraud are scary. But the Internet is simply the latest venue for the financial crimes we’ve always had to guard against. The good news is it doesn’t take much effort to significantly increase your protection—and significantly decrease your chances of becoming a victim.

Dale Lewis is president and CEO of Park State Bank in Duluth. You can reach her at president@parkstatebank.com or 218-722-3500.

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Our entrepreneurs deserve our thanks–and support

Park State Bank logoBy Dale Lewis

The entrepreneurial spirit is alive and well and living in the Northland.

If you had any doubt, take a look at the companies honored at the 22nd Annual Joel Labovitz Entrepreneurial Success Awards. The list of 42 nominees in five categories is impressive. It includes a butcher, an accounting firm, an art glass studio and a women’s health and birth center.

All are in northeastern Minnesota. All are businesses operated by our friends and neighbors. All are companies that involve significant risk-taking, difficult decision-making and lots of patience and persistence.

The entrepreneurial spirit is thriving in our region. It will keep us strong, but only if we support it. That’s why Park State Bank is a long-time sponsor of the Labovitz Awards. Entrepreneurs in our region put everything on the line every day with their businesses. We need to honor their efforts by buying their products and services.

I’m pleased to say that I see more entrepreneurial spirit now than I have in a long time in the Northland. Young people especially are stepping out and starting up companies in a place they want to call home—our community. But it’s never easy. The hurdles can seem never-ending. The nights can be sleepless. And the capital can become elusive.

Remember that we are just a few years removed from the last economic downturn. Many of the businesses that will be honored today at the Labovitz Awards started in the teeth of the Great Recession. Everyone believed his or her company would make it. Many firms did not. Every day is a new adventure and a new risk for an entrepreneurial business owner. Just ask one. The rewards are not just financial.

In my business, I have the pleasure of working with many local entrepreneurs. It’s an honor to be part of their dreams and to help make those dreams realities.

Entrepreneurs put everything they have on the line. They believe so much in their products or services that they often pledge all their assets to come up with the money to launch their businesses, to keep them going and to make the next payroll.

That devotion doesn’t cease after a few months or years. The life of an entrepreneur brings a sense of accomplishment constantly blended with uncertainty and anxiety. Yet they somehow put away the fears to focus on the business. For most, that means all of the business, including the bookkeeping, the technology and sweeping the floors. It’s true that entrepreneurs get to set their own hours—up before dawn and well into the night.

So what can we do to support entrepreneurs? It’s wonderful that for 22 years, the University of Minnesota Duluth and its Center for Economic Development have honored entrepreneurs with the Labovitz Awards. They are named after Joel Labovitz, who helped grow maurices from a single-location store in downtown Duluth founded by his father to the company that now operates more than 800 women’s clothing stores nationwide.

The recognition that comes from a Labovitz Award or nomination is nice. But more important is the support all of us can show local entrepreneurs every day. Seek them out. Buy their products and use their services. The best award any entrepreneur can receive is the honor of your business.

Know, too, that doing business with local entrepreneurs is good for everyone’s business. Entrepreneurs give back from their profits to local charities and other good causes. It’s their town, too. They also spend their money on other local businesses, strengthening our local economy.

The entrepreneurial spirit is alive and well and living in the Northland. Let’s all remember to do what we to keep their businesses strong all year long.

Dale Lewis is president and CEO of Park State Bank, 2630 W. Superior St., Duluth. You can reach her at president@parkstatebank.com or 218-722-3500.

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Rebate or lower rate? Which is better when buying a car?

Park State Bank logoBy Dale Lewis

Rebate or lower rate?

That’s the question that buyers of cars, particularly new cars, frequently confront when they’re making a purchase.

Often, that decision is made at the last minute, in the dealership office, with the pen in hand and the papers on the desk. Rebate or lower rate? Which one makes the most sense?

In many ways, it’s a nice problem to have. The car seller is offering you an incentive to buy and has two ways you can benefit. But which one is better? The best decision depends on your specific needs and financial situation, of course.

But I’ve seen too many buyers opt for the rebate, the money off the top, and fail to realize that they will end up paying that back—and maybe even paying more—in a higher original price or in interest costs over the lifetime of the loan. The rebate looks so good and is so immediate that it can blind the buyer to the better deal in the long run: a lower rate and lower overall price.

What’s more, the best interest rate may not even come from the dealer. With rates so low and banks looking for good loan customers, many car buyers can get a better rate on their own if they shop around before they make a purchase. Your lender may be able to consolidate your purchase with other debt and improve your financial picture. Tax deductibility may even be an option by tapping your home equity.

This could allow you, as a car buyer, to have the best of both worlds—a rebate from the dealer and a great rate from an outside lender of your own choosing.

But it means that you should do what we strongly suggest for anyone contemplating a big purchase such as a house or a car within the next year. Stop in at your local bank. Get to know a lender. See what’s available. Let us make you an offer.

We’re happy to show prospective customers the best borrowing structure for them. We’re also flexible, so you can act quickly if the right deal comes along. Ideally, we’ll get you prequalified for a loan so you’ll be ready to go when you want to buy. That way, you can purchase without last-minute worrying about whether you’re making the best financial decision.

Here’s another, little-known fact to consider when buying a car. Many dealerships will tell you that they have relationships with several lenders and can send your information to all of them to give you a choice of loan options. There’s no need to go any further than their offices to find the loan with the lowest rate, it seems.

But when the dealer submits your loan information to multiple lenders seeking that best deal, this will lower your credit score. Multiple applications, including a blanket search for the best rate, has that effect.

The impact eventually goes away. But assume you are interested in buying a car, submit loan applications to multiple lenders and then decide not to buy. All you have done is lowered your credit score, making it more difficult to get a loan if you do decide to buy soon.

It’s much smarter to shop around for financing before you buy. Get your lending options figured out and develop a relationship with a lender you trust. A reputable lender is more than happy to put in the time and effort to help you. If your lender won’t do this, find another lender.

With a little preparation before you purchase, you can make the best decision about your loan without putting yourself under pressure, potentially regretting your choice and damaging your credit score.

And when the question arises—rebate or lower rate—you can get the best answer.

Dale Lewis is president and CEO of Park State Bank in Duluth. You can reach her at president@parkstatebank.com or 218-722-3500.

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Why we’re committed to helping customers improve their credit

Park State Bank logoBy Dale Lewis

For years, we’ve heard the discussion. Lots of us have been talking about too many people with credit problems in America.

At our bank, we’ve decided to do something about it. We’re offering a new program called Credit Builder designed to help those with no credit or low credit raise their scores. It’s pretty simple. Here’s how it works:

A consumer takes out a loan. But rather than receive the loan money immediately, it stays with the bank in an interest-earning certificate of deposit.

Meanwhile, the consumer starts making monthly payments to retire the loan. We make the loan amount and the amount of the monthly payments fit what the consumer can handle.

The most important part is we have extended credit, and the consumer is taking steps to develop a solid track record of repayment. That’s really what a credit score is: a track record. Lenders want to know whether you are a good loan or credit risk. In other words, how likely are you to pay them back?

A high credit score means you are a good bet. A low score means you aren’t.

But for people without a credit history or with damaged credit, building credit often seems like an impossible task. They can’t get a loan because they don’t have good credit. But they can’t improve their credit because nobody will give them a loan.

That’s why we started Credit Builder—and why more financial institutions should start similar programs.

Even before a consumer in our program has made the last loan payment, he or she likely will have an improved credit score—sometimes considerably better. At the end of the program, the consumer also has a nice savings account. Remember that loan the borrower took out? It is now repaid and fully the property of the consumer, plus interest.

It’s a start to fixing the credit problem in America, slowly but surely and with solid fundamentals. No games. No gimmicks.

Lots of folks were hurt, and their credit was damaged, in the last economic downturn. In addition, more young people have entered the working world looking for a chance to participate in the economy with careful credit purchases, only to find stricter lending rules. Without a program like Credit Builder, it’s hard for people to start or restart.

This kind of meat-and-potatoes credit building isn’t lucrative work for banks or other lending institutions. That’s why few of them focus on it.

But getting a loan for a home or a car is still part of the American Dream. The financial services industry needs to work with consumers, and the economic conditions we confront, to make sure that the dream remains achievable.

All of us should want to see people in our community with strong credit. It benefits them, of course. But it also benefits the rest of us when more of our neighbors can fully participate in our economy by responsibly purchasing important items such as homes and cars on credit. That’s what makes the economy go.

At our bank, we’ve decided to start doing something about it.

Dale Lewis is president and CEO of Park State Bank in Duluth. You can reach her at president@parkstatebank.com or 218-722-3500.

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Looking for a mortgage? Here’s what you need to know

Park State Bank logoBy Dale Lewis

What size of mortgage can I afford?

It’s a question many are asking as our weather warms and thoughts turn to home buying.

Even if you are not a first-time home buyer, you’re wise to understand the elements that make up a mortgage. It will help you understand why payments look like they do and what you can do to make your payment affordable.

Here are the components:

Principal: The overall loan principal represents the amount you borrow. It is the starting point, though not the only factor, in determining your monthly mortgage payment.

The principal portion of your monthly mortgage payment works to reduce your loan obligation each month. In general, the larger your loan, the larger your monthly payment. But the length of your loan repayment period also plays a big role in determining how much you pay each month.

Interest: This is your cost of borrowing. The interest rate is the fee, expressed as a percentage, to use a lender’s money to buy your home. Each month, it translates into the interest portion of your loan payment, which usually makes up a larger portion of the payment at the beginning of the loan and a smaller portion at the end.

For home buyers, we’re fortunate to be in a period of historically low interest rates. There’s always much discussion about where interest rates are headed, but the general feeling is they eventually will rise. Right now, however, they remain low, making the cost of a loan a good deal.

The other good news with your interest payment is that it becomes a deduction on your income taxes at the end of the year. This is a significant benefit of buying a home instead of renting. You not only are building your equity, or ownership stake, in the place you call home, but you also get a tax deduction on your cost of borrowing to achieve that goal.

Escrow: When you buy property, you also start paying another kind of tax—property tax. It comes with the territory, and your lender wants to make sure that it is paid.

Many monthly mortgage payments, and especially those for owners with less than 20 percent equity, include a portion set aside to go to the local property tax collector. But when the tax bill comes due, you have contributed your funds to an escrow account managed by your lender, and the lender ensures that the property tax is paid.

In addition, lenders often require a portion of your monthly mortgage payment to go into a similar escrow account to pay for homeowner’s insurance coverage. Compared with principal and interest, the property-tax and insurance escrow portions usually don’t make up a huge portion of your monthly payment. But both are worthwhile services that protect you as the homeowner.

Other payments: Mortgage payments can include other fees as well. If you have less than 20 percent equity, most lenders also will require you to purchase private mortgage insurance, or PMI. PMI is a cost you pay to insure the lender in case you default. In most cases, you can avoid PMI with an initial down payment of 20 percent or more.

It’s wonderful that we have many mortgage options these days, from conventional 30-year loans with fixed rates to shorter term loans with adjustable rates and features such as “balloon” payments. But that complexity makes it even more important to develop a relationship with a lender who can walk through all of the details to help you understand what’s best for you.

Start that relationship now, before you look at homes or as you are looking. Understand what makes up a mortgage payment and how you can adjust the variables. That’s the best way to make sure you can buy the house you want when you find it.

Dale Lewis is president and CEO of Park State Bank in Duluth. You can reach her at president@parkstatebank.com or 218-722-3500.

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