The US Federal Reserve announced recently that is would be reducing its balance sheet – essentially getting rid of all or most of the assets it acquired to prop up the economy after the collapse of the housing sector and financial markets in 2008. That was a risky gamble that appears to have paid off – we have had slow but steady growth since the economy bottomed out in the “great recession.”
The Fed is essentially signalling to the markets that it will be incrementally and gradually tightening the money supply, and thus pushing up interest rates. Rates have been at historic lows for a very long time, and we have enjoyed that in the form of very low mortgage rates and relatively low short-term rates for automobiles and consumer lending – except for credit cards!
If you are thinking about refinancing to take equity out of your property, now is probably a good time to consider that. Since mortgage rates are likely to increase over time, now is also probably a good time to buy property, although there are many other determining factors, e.g., price, proximity to public transportation and amenities, etc.
It is also the time to consider paying off or refinancing any variable rate credit that you might have by either making additional principal payments or locking in at a fixed rate. If you have cash balances that are not required for the business, you may not want to lock into any long-term instruments (6 months or more) until the interest rate environment starts to become clear.
The downside of this process is uncertainty, which could possibly lead to some volatility in the markets. The markets have become accustomed to the low-interest rate policy environment (which kept business borrowing rates historically low). Previous attempts to rates caused the markets to become skittish. But rates can’t stay at these low levels forever. So be prepared for a gradual rise in rates, and perhaps some bumps along the road.
Should you need advice on how to refinance, buy or sell property, I’m available to talk.