Now May Be the Time to Refinance
Timing is very important in agriculture, as well as in other business and investment endeavors. There are occasions where one week's difference in time of planting, harvesting or selling means the difference between a "good" year and a "bad" year. Some "timing" situations can be planned for or guarded against, while others may more aptly fall under the category of luck or good fortune. Sometimes, in a long-run endeavor like an agricultural production business, the owner/operator gets caught up in making the day-to-day or even year-to-year short-run decisions and fails to recognize a long-run timing opportunity when it presents itself. The current level of long-term interest rates may be a case in point. Rates have most likely bottomed, but compared to the last 40 years, they are still very attractive. If you have long-term debt or short- to intermediate-term debts that could be consolidated into a long-term package, now may well be the time to refinance. Now is definitely still an opportune time to make profit enhancing investments in your operation. See my December 2004 Ag News and Views article for details.
Fifteen-year fixed-rate land mortgages are at about 7 percent. There are more variable rate packages available than space permits me to discuss, but variable rates are a percent or more lower than fixed rates. If you have an "off-farm" residence, those fixed rates are being quoted in the 5.75 percent range with numerous variable rate packages considerably lower. Someone with considerable equity in an off-farm residence might consider refinancing the residence and using the proceeds to pay down higher-rate land or equipment loans.
I know many reading this abhor debt. Debt, however, is just another input, not unlike fertilizer, diesel or seed. Right now, there is still opportunity to lock in a good value on debt. There are several rules-of-thumb guides to refinancing decisions that don't necessarily apply to all situations. Therefore, one should analyze each combination of alternatives on their individual merits. With the computer software packages available, it is possible to consider many alternatives in a matter of minutes.
Thought for the Month A stone thrown at the right time is better than gold given at the wrong time. Persian Proverb