Understanding Agriculture Land Loan Financing Rates and Structures

In today's economic landscape, effective financial management is more crucial than ever. Understanding the differences between variable and fixed-rate land loans can help you make informed decisions about your agricultural debt.

Navigating Economic Uncertainty with the Right Financing

Economic cycles of fluctuating interest rates present both opportunities and risks. Choosing between a variable and a fixed-rate land loan depends on your leverage position and where we are in the interest rate cycle along with how that fits within your financial goals.

We provide farm and ranch Land Loans up to 75% LTV.  

Variable Rate Land Loans

A variable rate land loan features an interest rate that adjusts periodically. Key characteristics include:

• Flexibility: Typically, the floating rate loans have the most prepayment flexibility as the rates are floating with the market.
• Rate Adjustments: The interest rate can vary based on market indices such as the Prime rate or SOFR, with adjustments occurring at regular intervals (e.g., monthly or quarterly).
• Payment Variability: Monthly payments can fluctuate with interest rate changes. Increased rates can lead to higher payments, while decreased rates can lower them.
• Prepayment Penalty: With Variable Rate loans, the borrower retains as much flexibility as possible by not having any prepayment penalty associated with the loan structure.

Variable rate loans may be beneficial if you anticipate declining interest rates, plan to sell or refinance before rates increase, or are comfortable with potential payment fluctuations.

Fixed Rate Land Loans

A fixed-rate land loan offers a consistent interest rate throughout the loan term. Its advantages include:

• Long-Term Stability: Terms can range from 1 to 30 years, providing consistent payments over the life of the loan.
• Predictable Payments: Payment obligations remain constant, making budgeting straightforward and protecting you from market rate increases.
• Financial Security: Fixed-rate loans offer stability and predictability, ideal for those anticipating rising rates or long-term land retention.
• Prepayment Penalty: Most Fixed Rate loan programs have some period of prepayment penalties. With PACT Capital, we provide the most competitive fixed rate loan programs because we have no prepayment penalty, which ultimately provides the borrower with the pricing power and flexibility of variable rate loans with the predictability of the fixed rate structures.

Fixed-rate loans are suitable if you value predictability, expect rising interest rates, or plan to keep the land long-term without refinancing.

Adjustable-Rate Mortgage (ARM) Land Loans

An adjustable land loan combines elements of both fixed and variable rates:

• Initial Fixed Period: There is an introductory fixed rate period where the interest rate remains fixed, ensuring stable payments, then adjusts after that period.
• Subsequent Adjustable Period: After the fixed period, the rate adjusts annually based on market conditions and floating rate indexes, which can affect payments.
• Caps on Rate Changes: ARMs often include caps to limit how much the interest rate can change during adjustment periods, providing more protection than typical variable rate loans.

Adjustable loans may be advantageous if you plan to refinance or sell before the fixed-rate period ends, expect stable or declining rates, or need a competitive rate with a long-term loan structure. ARMs are usually the choice for short-term holds as they have less restrictive prepayment penalties associated.

Partner with PACT Capital for Expert Guidance

At PACT Capital, we provide a wide range of traditional and alternative financing programs tailored to the needs of our customers at every point of their borrowing cycle.

Discover how our expertise can help you navigate the complexities of land loans and secure competitive financing for your agriculture investments and operation.

Contact us today to explore your options.