Should I be fixing my Interest Rates?

This is a question many people are asking. I believe it’s something we need to be looking at regularly. As far as when you should fix them, that depends on many factors.   *    Are you planning to stay with your current lender? Are there any Prepayment Penalties? They have committed to investors to pay a fixed rate on their funds. Thus, you will likewise be committed to the bank. If you pay a fixed rate loan off early, you may be subjected to a prepayment penalty.   *    Will you be increasing your loan amounts soon? Be certain that this doesn’t impact your rates. Often, they’ll set up fixed rates on portions of your loan at various maturities.   *    Where do you think interest rates are heading…UP or DOWN? Look at the leading indicators. Read the Economy section of The Wall Street Journal or check at www.WSJ.com. Read the Business section of your local newspaper. Look at Kiplinger’s or MONEY magazine. If the economy sounds like it is weakening, the Fed may step in and lower rates…to stimulate the economy. If it is showing signs of exuberance and growth, they might increase rates to slow the economy and reduce inflation.   *    What is the basis of your lender’s fixed rates? This matters because there is not always a perfect correlation between what the Federal Reserve Bank does to influence the PRIME RATE and what happens to other rates. It’s important to know if your floating or fixed rates are tied to the Prime Rate, LIBOR, or Treasury rates. Be sure to study the rates available to you before committing. If you don’t understand them, ask for an explanation from your banker, your accountant, or another financial advisor.   *    How tight is your budget? Interest rates you pay certainly can impact your bottom line results!!! This is true for any business that borrows money. 1)      If you are new in business or are carrying a lot of debt at present, you may benefit from fixing your interest rates. 2)      Just being certain of your interest being paid might help you sleep better at night. Each of us has a different temperament for these items! 3)      Ultimately, you’ll want to keep the bottom line positive – this is only one factor to watch!   *    Will you call all of these decisions perfectly correct? No one does. However, spend some time studying the movement of rates (trends) and talk with more experienced borrowers, your accountant, or lenders! As you study more and watch these trends, you’ll become better prepared to make decisions to increase your odds for success.