Weighing the factors that influence investing

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When is the right time to invest in growth? That’s a multi-million dollar question constantly examined by business executives looking to invest in new equipment, new office space or a new market.

Federal policy has kept interest rates at or near historic lows since the start of the housing collapse and The Great Recession. Those trends have been good for the housing market, and for anyone who can qualify for a loan. 

But there’s plenty of speculation that the days of home interest rates below 3 percent, and Federal Reserve rates at zero, are ending. If so, now is the time to lock in the best deal you can find whether you seek to refinance a home, or expand or purchase another business.

Even a slight rise in interest rates can translate into thousands of dollars in added costs for a mortgage, car loan or larger moves such as financial arrangements aimed at rehabilitating a business or increasing inventory.

No one can say for certain when — or if — interest rates will bounce upward, or how high the eventual uptick will be. Still, rates are low and there’s plenty of evidence these numbers have nowhere to go but up.

A recent report from the Department of Commerce revealed the personal consumption expenditure price index was up 1.6 percent in June. That’s the 26th straight month that figure fell below the federal government’s 2 percent inflation goal, according to the Wall Street Journal. If those trends continue, the Federal Reserve might keep things as they are. 

Critics contend that an improving economy and lower unemployment numbers warrant the government to change course and raise interest rates.

Today, unemployment is at 6.2 percent (down from 10.1 percent in 2009). Nearly all of the 8.7 million jobs lost in the recession have returned. Real estate prices have bounced back and the stock market is at or near historic highs. All this good news suggests that interest rates must keep up with the times and slowly begin to rise.

Any change made by the federal government is certain to affect the rate average borrowers get from banks.

That inevitability of higher rates coming sooner than later may suggest that now is the time to lock in a longer term fixed rate on a loan, business expansion or any other financial move.

The government is expected to cut back on its aggressive bond-buying it has employed to steady the economy following The Great Recession. If the government shifts in that direction, interest rates are certain to go up. How much and how fast, remains unknown.

Still, no one wants to upend the current positive trends in unemployment. Any heavy-handed nudge at interest rates could choke off the current economic trends. As such, it is likely that when a rate increase comes, it could be gradual, not dramatic.

Smart business investors will want to keep a close watch on interest rate trends, and perhaps stay closer to their bankers. It’s wise to seek out lenders now, get your paperwork in place, and consider all refinance or new loan options. 

You don’t want to be caught behind the curve, because once the rates move up, few think they will return to today’s historic lows. Of course predictions of rate increases have been constant for the past two years. And still, rates remain low. 

At the moment, long-term fixed rates are a bargain. And there is always the chance that rates could dip yet again. 

But a recent report from The Mortgage Bankers Association indicated lenders expected the rate of refinancing to slow and fall dramatically this year. Insiders at the MBA see upward movement, with some suggesting that a 30-year fixed-rate mortgage will rise to 5 percent or higher by the end of 2015.

So keep an eye on the trends, consult your lending institutions and be ready to act.

Aileen Berrios is senior vice president, Commercial Banking Group, for Vectra Bank Colorado.