Fixed

Fixed rate agricultural loans will have the rate of interest being charged on the loan “fixed” for a period of 5 days to 20 years. Fixed rates are also available on country home loans. The interest rate on all fixed rate loans can be fixed for the full term of the note. This allows you to know your annual interest expense throughout the life of the loan. Agricultural fixed rate loans are not subject to a prepayment penalty with the exception of large loans where a prepayment penalty is negotiated up-front with the borrower.

Variable

Variable rate loans are loans that have an interest rate that can vary up or down, during the term of the loan. The rate being charged on variable rate loans is tied with a particular “index”. These indexes allow you, the borrower, to judge for yourself, what potential movement there may be in the rate. These “indexes” are just that, an index. They are not the actual rate you will be charged on your loan.

Prime Indexed

The Prime rate is a retail interest rate that is generally controlled by major US money center banks. It moves infrequently and usually in large increments (i.e. 50 basis points). The Prime is the “WALL STREET JOURNAL” published PRIME RATE

LIBOR Indexed

If a variable-rate loan product is one you are considering, you need to consider the following:

Farm Credit variable rate loans are based on one of two accepted market rates – Prime Rate and London Inter-Bank Offered Rate (LIBOR).

While Prime Rate is the most well known and is somewhat market driven, LIBOR is a truer market rate and reacts to changes in the money market more quickly than does Prime.

LIBOR is published daily in the Wall Street Journal and is one of the most widely accepted 90-day, cost-of-funds measures worldwide. It is the rate charged for funds by banks when lending to other banks and is responsive to trends in money market rates such as those for U.S. Treasury Bills.

LIBOR may fit your commercial operation better than any other rate, because it moves with the market like the price of the commodities you produce. There is no prepayment penalty if you have extra cash and wish to retire your debt.

Adjustable Rate

Adjustable Rate Mortgages (ARMs) are a special kind of product that combines some features of both fixed and variable interest rate products. ARM’s fix the interest rate for a specified period of time, one-year, three-year and five-year. The interest rate is indexed to US Treasury securities. As US Treasury rates move the rate on the ARM may move also, after the initial fixed period.

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