Depending on how much debt your business carries, your exposure to changes in the interest rate could be high or low.
The best advice I can give about the future of interest rates:
Don’t believe the fortune tellers!
If your banker says, “ We don’t see interest rates rising for a couple years.” - Don’t believe him.
If the media makes a prediction – don’t believe them either.
How is it possible to predict the future? You can’t.
By the way, did you know the 10 year U.S. Treasury rate has risen from around 1.7% in April, 2013 to as high as 2.98% in August, 2013 ?
Did you see this article about Canadian mortgage rates?
Two things you can do:
1) Hedge your interest rate bets.
If you have a line of credit in place, the interest on that typically changes with the prime rate of interest. This rate has been 3.0% since January, 2011. You can’t lock this rate in if you wanted to. Therefore, if you have a term loan and/or mortgage debt you could consider locking in the current rate to reduce the risk of interest rates increasing. This way you have a balance of variable rate and fixed interest
2) Blend and extend.
This concept of blending and extending exist mainly for residential mortgages. If you are currently in a fixed rate mortgage but it is not due yet, you can consider doing a ‘blend and extend’. If you have 2 years left at 2.95% and the current rate is 3.59%, you can blend the two rates and get a new 5 year mortgage at 3.25%. The benefit of this move is to eliminate your exposure to the risk of interest rate hikes for the next 5 years instead of only 2.
It is best to be proactive with respect to managing your interest rate risk, educate yourself and know your options. If you carry a lot of variable rate debt, it is worthwhile knowing what fixed rate options may exist for you. Even if the fixed rate is a little higher, you can purchase piece of mind and reduce your interest rate risk accordingly.
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