Eliminating risks long term is not easy
An agricultural operator is faced with many risks. Most of these risks cannot be eliminated such as weather, health, commodity prices and costs. However, one risk that can be eliminated is the risk of higher interest cost by locking in a low rate at this time.
Marl Carter, who operates a mortgage company, has been assisting farm and range families with long-term loans for more than 30 years. He serves Oklahoma and surrounding states with loans being funded through major ag lenders, some who have been making ag loans for more than 50 years. He believes rates are at a level that an operator should take action now to “lock in” their interest for several years. He encourages potential applicants to call and learn more about the benefits that might improve their particular situation.
Loans can typically be reduced or paid in full, without penalty, at each loan payment date. Interest rates have increased recently and many experts agree they will continue to trend higher. Many operators have locked in their rates and have taken the risk of higher interest out of their operations for 20 years. The savings goes directly to the operator and can be used for operating money, reduce debt or many other purposes.
Interest rates can be locked in the 4.5 percent to 5.9 percent range as of the first week in November. Rates change constantly so borrowers are encouraged to gather current information.
Carter suggests the operator review each of his current loans by taking note of the current interest rate, whether the rate is variable or locked, and note when the loan will mature. Interest rates could be much lower now than when a loan matures in the next three to five years. In that case, it would be smart to go ahead and refinance to a new loan at this time.
One should consider combining several loans in to one and locking the rate, Carter said. Typically, the benefits are that the interest rate will be lowered on the debt and one can convert several of the variable loans to a fixed rate.
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