Fixed and variable interest rate loans offer many advantages and disadvantages.
Ready to invest in your future but not sure which financing options will best meet your needs? Read on to learn more about fixed interest rate loans versus variable interest rate loans.
Fixed Interest Rate Loans vs. Variable Interest Rate Loans
Fixed interest rate loans are loans in which the interest rate charged on the loan will remain fixed, or stable, for that loan’s entire term regardless of what market interest rates do. As a result, borrowers pay the same amount each month.
However, with variable interest rate loans, the interest rate charged on the outstanding balance could change as market interest rates change – so a borrower’s payments may vary based on the rate adjustment method selected for that loan. Good lenders spend considerable time to clearly explain the various adjustable rate options and their suitability to the borrowing need.
To determine which type of loan is best, borrowers should consider the most likely current and future interest rate environments.
Generally, if the loan will be paid back in under five years, experts recommend going with a variable rate, but borrowers must examine their appetite for risk and consider the worst-case scenario of a variable rate loan and determine if they will be able to generate the necessary money for payments. In addition, borrowers typically have more options with variable rate loans but should ensure they understand the adjustment frequency and the characteristics of the index to which it is tied.
Be sure to understand the closing costs and early payment options associated with each loan type. Consider the total cost of carrying the loan over the expected duration and how easy or hard it will be to meet on-time repayments. Finally, carefully consider the risks associated with each loan variation.
If you’re interested in learning more about the custom loan packages and options available to help your agribusiness grow, contact AgAmerica Lending today. Our land loan experts will be on hand to walk you through the process.
To help prepare you for the call with our experts, check out the top 10 documents you will need to apply for a land loan with AgAmerica.