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3 Questions to Ask in a Changing Rate Environment

3 Questions to Ask in a Changing Rate Environment

6/1/2018

Interest rates have been a hot topic so far in 2018. With rates already rising and projections of continued increases, schools evaluating external financing for critical campus projects this summer should be aware of potential budget implications.

While projects come in all different shapes and sizes, there are some important questions to consider as you prioritize and analyze your options:

  1. What are the estimated project expenses?  What is the project timeline and how long will it take to complete the project?  Projects with longer implementation timelines have greater exposure to interest rate risk as the rates associated with traditional financing products are not fixed until the project is complete.
  2. What financing terms are you considering? The longer the financing term, the more sensitive your project is to increases in interest rates.  A simple 25bps increase in rates on a 5-year term can increase your overall interest expense by over 6%.
  3. What is your appetite for interest rate risk? As you begin evaluating project financing options, the emerging consideration of how you mitigate interest risk can provide increasing value should rates continue to climb.  If you have longer timeline considerations and prolonged financing terms, managing overall interest rates becomes important.

Tailored financing structures that include interest rate locks or forward interest rate swap agreements remove uncertainty from your most complex school projects by giving you the peace of mind needed to manage interest rate risk. 

Learn more about how your school can maintain budget consistency or reduce project interest expense with First American’s custom solutions. Complete the form below and we’ll reach out to schedule a call.


 
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