Fixed Rate vs. Variable Rates: Which Is Better?
When in the market for an Ag land loan, farmers are confronted with many important questions. One such question is whether to take out a farm land loan with a fixed or variable interest rate.
When making this choice, it's important to know the difference between the two and why different types of loans may be better for certain situations than others.
What Is a Fixed Rate Loan?
Fixed interest rate loans are loans in which the interest rate will remain constant for the entirety of the loan's term, regardless of market interest rates activity.
What Is a Variable Rate Loan?
A variable interest rate loan sees its interest rate change based on what market interest rates do.
How to Decide Which Rate Option Is Best for Your Financial Needs
Below we have outlined a few key things to consider when choosing a fixed vs. variable rate loan, based on what you may be looking for in your loan.
Anticipated Length of Loan
If you anticipate refinancing your loan in the near term, a variable rate may better suit your needs. This could be due to an expected farm transition or if you anticipate financing additional land/resources in the near future.
However, if you foresee holding the loan for an extended term, the predictable payment structure of fixed loans may be preferrred.
Current Spread Between Fixed and Variable Rates
Take stock of where rates are sitting when you are ready to close a loan. The magnitude of the spread (i.e. how far apart the variable rate is from the fixed rate) is an important piece of information to be aware of when making your decision.
Understand your personal tolerance for risk. While one benefit of a variable rate loan is that the interest rate may decrease, the inverse may also occur.
Understanding how comfortable you are with that dynamic is very important when making your decision.
Desired Payment Amount
If you have a targeted interest payment amount, analyzing which loan type will provide an interest payment closest to that amount will aid your decision.
Ready to Apply for a Land Loan?
Whether a fixed or variable rate is better for your financial situation, FBN® Finance is here to help you get the capital you need to build a stronger financial future. With our variety of rates and terms, we will provide the customized financing that works best for your operation.
Our expert team of loan advisors average 15+ years of ag finance experience and are well equipped to assist you in getting the loan that best fits your needs. Click here to start your application or complete the form below to have a member of our FBN Finance team help you start the process.
© 2014 - 2023 Farmer's Business Network, Inc. All rights Reserved. The sprout logo, “Farmers Business Network”, “FBN”, "Farmers First", “FBN Direct”, "F2F", and "F2F Genetics Network" are trademarks, registered trademarks or service marks of Farmer's Business Network, Inc.
Terms and conditions apply. Land financing offered by FBN Finance, LLC, provided in connection with Farmer Mac and our underwriting partners, and is available only where FBN Finance, LLC is licensed. To qualify, a borrower must be a member of Farmer’s Business Network, Inc., and meet the underwriting requirements of FBN Finance, LLC and its lending partners. All credit is subject to approval and underwriting. Interest rates and fees will vary depending on your individual situation. Not all applicants will qualify. NMLS ID: 1631119.
Disclaimer: The material provided is for educational purposes only. It is not intended to be a substitute for specific individualized tax, business, legal, investment or professional advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner, or investment manager. Neither Farmer's Business Network, Inc. nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in the material and any liability therefore is expressly disclaimed.