Farm Loan Refinance Benefits: What Every Operation Should Know

In a shifting economy, farm loan refinancing is a powerful tool.

In an economy so prone to change, it can be hard to plan farm finances—especially when you have existing debt. In this article, we’ll break down the elements behind a farm loan refinance to help you understand if refinancing can improve your operation’s bottom line.

How Can Farm Loan Refinancing Improve Your Cash Flow?

Access to capital through loans, including government-backed programs and private lenders, is essential for operational expenses, expansion, and navigating financial challenges. Understanding when is the best time to refinance existing loans can help your farm in multiple ways, including:

1. Lower Monthly Payments

By refinancing to a loan with a lower interest rate or longer repayment term, you can reduce your monthly payments. That frees up money you can use for other farm needs—like equipment, feed, or labor.

2. Debt Consolidation

Refinancing lets you combine multiple loans into one. Instead of juggling several payments, you make a single payment—often at a lower overall cost—making it easier to manage your finances.

3. More Flexible Terms

You may be able to extend your loan term to better match your income cycles (for example, seasonal harvests), which can reduce pressure during slower months.

4. Access to Working Capital

Some refinancing options let you borrow a bit more than you owe. This extra cash can be used to invest in your farm—like repairs, upgrades, or expansion.

How Land Values Affect Farm Loan Refinancing

Farm real estate is the biggest and most valuable part of a farmer’s assets. Because of this, land value plays a big role in farm loans.

As land value rises, farmers build equity—the difference between what the land is worth and what’s still owed on it. More equity makes it easier to refinance, because the loan is seen as less risky to lenders.

After staying mostly steady from 2014 to 2020, farmland prices started going up in 2021—even when you account for inflation. That upward trend has continued through 2024, increasing five percent. This increase puts farmers in a strong position to refinance their loans.

Understanding Interest Rates

Farm loans usually fall into one of two categories—fixed rate loans and variable rate loans. Understanding the pros and cons of these rate structures can help you decide which loan is best for your operation.

	Fixed Rate	Variable Rate
Pros	Predictable Payments: Your interest rate stays the same for the life of the loan, so your monthly payments won’t change.Easier Budgeting: You know exactly what you’ll owe, which makes planning easier—especially helpful when farm income varies.Protection from Rising Rates: If interest rates go up, your rate stays the same.	Lower Starting Rate: Often starts with a lower interest rate than fixed loans, which can save money early on.Can Benefit from Falling Rates: If interest rates go down, your payments might too.Short-Term Advantage: Can be a good choice if you plan to pay off the loan quickly.
Cons	Higher Initial Rate: Fixed rates are usually higher than starting variable rates.Less Flexibility: If interest rates go down, you’re stuck paying the higher fixed rate unless you refinance.Early Payoff Penalties: Some fixed loans charge fees if you pay off the loan early.	Unpredictable Payments: Your rate (and payment amount) can change, making it harder to budget.Risk of Rising Rates: If rates go up, your loan becomes more expensive.Financial Uncertainty: Not ideal if your farm income is already inconsistent.

Even though the Federal Reserve is expected to lower interest rates, mid- and long-term rates are still going up due to inflation fears and market confidence in the U.S. economy. Rising interest rates make it more expensive to farm—especially when crop prices are low and supply costs are high.

In this environment, farms should prioritize cost savings. That could mean refinancing your loan at a lower rate. It could also mean refinancing to access more capital to purchase equipment that will save on labor costs. Every farm is different—it’s important to take a look at your finances and consider what is best for you in the long term.

How Likely Your Farm Loan Refinance Will Be Approved

Ag lenders evaluate the five Cs of credit—Character, Capital, Capacity, Collateral, and Conditions when considering loan refinances. The stronger these factors are, the more likely farmers will be approved for a refinance on a loan.

• Character: Borrower’s credit history and managerial reputation and capability.
• Capital: Borrower’s personal investment in the ag operation.
• Capacity: Borrower’s ability to repay the loan based on current income and debt.
• Collateral: Pledged real estate asset used to secure the loan.
• Conditions: Factors such as the interest rate and purpose of the loan.

You can get a quick understanding of your farm’s financial health by using our Health Check Calculator.

Refinance Your Farm Loan with a Trusted Ag Lender

At AgAmerica, we understand that rural landowners are facing shifting economic conditions, elevated interest rates, and tight margins. We have a deep commitment to conserving rural America—we believe that farmland serves our country best when it is in the hands of farmers. That’s why we offer flexible, custom loan refinance options. We work with you to gain a deep understanding of your operation and how we can create the best possible outcome.

Learn more about our farm loan refinance options or contact us to talk to an ag lending expert.