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Many
people think of interest as an "uncontrollable" expense.
However, by wisely choosing the type of interest plan and repayment
schedule, you can maximize the use of the money while minimizing your
interest costs.
Farm Credit has several rate plans available to suit your particular
situation and unlimited options for loan terms. Fixed rate plans,
variable rate plans and adjustable rate plans are three of the most
popular. With all of these plans, you have the ability to change
interest rate products as your interest rate needs change.
Fixed
Rate Plans
The
interest rate on these loans will be fixed for the entire term of the
note. This term can be as short as 5 days and as long as 30 years on
Country Home mortgages.
Variable
Rate Plans
Your
loan can be tied to changes in the financial market. Your interest rate
is calculated by adding a specific number of percentage points to an
index. The rate then changes on the first day of the month based on the
index published on the 15th of the previous month.
There
are two indexes available; Prime Rate and LIBOR.
Prime Rate is the rate most often published in the news and is the base
rate quoted by commercial banks as the rate charged their most
creditworthy customers.
LIBOR
is the 90-day London Inter-Bank Offered Rate and is a widely monitored
international cost-of-funds measures. The LIBOR index is more responsive
to changes in financial market activity than the Prime Rate.
Agricultural
variable rate loans generally will not have an annual or lifetime cap on
interest rate changes. Consumer-type loans secured by a dwelling are
available with interest rate caps.
Variable
loans are not subject to prepayment penalties.
Adjustable
Rate Mortgages
Adjustable
Rate Mortgages (ARMs) allow you to gain some interest rate protection by
fixing the rate for a specified term. ARMs are offered with one-year,
three-year, and five-year repricing options. The interest rate for ARMs
is indexed to the weekly yield on U.S. Treasury Securities, adjusted to
a constant maturity equal to the ARM terms. For example, a one-year ARM
would be indexed to a constant maturity of one-year Treasury securities.
The
interest rate on a loan will equal the rate of the index plus a
specified number of percentage points. The interest rate is subject to
change at the end of the repricing period. A one-year ARM is repriced
every 12 months, a three-year ARM every 36 months, and a five-year ARM
every 60 months.
ARMs
may contain caps or ceilings associated with interest rate changes.
There may be an annual cap and a lifetime cap. Caps are designed to give
a borrower protection against increases in interest rates. There are no
prepayment penalties on an ARM loan.
Leasing
Leasing
is an useful financing alternative that can maximize your cash flow and
possibly reduce your taxes in certain situations. Leases are especially
useful for equipment. Ask your loan officer to run a lease - loan
comparison to see if leasing may be an option for you. |
Colonial Farm
Credit, ACA