How the interest rate hike may affect business

Commercial real estate investors and developers in Chicago by now know that the Federal Reserve has raised the interest rate. The quarter-point interest rate hike was the first increase since 2006. Now, many investors are wondering how the increase will affect their business.

Though the interest rate hike was minimal, it still means that borrowing money is now a little more expensive. Investors and homeowners who are concerned about future interest rate hikes may decide to refinance right now, while interest rates are still relatively low. Borrowers who wait to refinance their home loans may face more difficulties, as the interest rate could be raised even higher.

Because the cost of loans has increased, borrowers may start looking for smaller loans. Lower-priced properties could become more attractive to buyers, as buyers worry that they won't be able to afford the interest payments on larger loans. At the same time, borrowers who cannot afford the higher interest on their loans might default. Higher interest rates technically benefit financial institutions because the lenders get more money for each loan. However, financial institutions and the economy as a whole could suffer from an increase in loan defaults.

Commercial real estate investors and developers may want to talk with an attorney about how the interest rate increase may affect their existing and future transactions. Experienced real estate attorneys can review a potential project that a developer may be interested in and determine whether the projected cash flow can support the higher cost of borrowed money as a result of the hike.

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