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Is Refinancing Right for Your Farm?

Running a farm can be quite difficult on multiple levels. Farm profits usually go directly into the running of the farm, and the reality is that many farmers barely break even. With that being said, it can be difficult to deal with farm mortgage loans, which is why many farmers often find themselves wanting to refinance their farms. But refinancing must be taken seriously. The question is: if refinancing your farm is an option, is it really the right option?

Why Do People Refinance Their Farms?

One of the main reasons why people choose to refinance their farms is that they're trying to improve the cash flow of their farms. This is because they need to improve short term obligations. It can be difficult for farmers to keep up with financial obligations, and by refinancing they can pay off their creditors more efficiently. In this sense, refinancing can be a strong financial decision.

With the U.S. measurement of value for all farming land averaging $3,380 per acre for 2021, which is up $220 per acre (7.0 percent) from 2020 (National Agricultural Statistics Service), it's clear that value is present; it just can be difficult for farmers to maintain their financial obligations.

How Does Refinancing A Farm Mortgage Loan Work?

Not every farm owner is going to be approved for refinancing, even if it seems like the right choice for them. Typically, there are five different factors that influence whether or not a farmer will be approved for refinancing. These factors include:

  • Character
  • Capacity
  • Collateral
  • Conditions
  • Capital

The reason these factors are considered by lenders is that they can display whether or not an individual is more likely to default on a loan. The issue with refinancing in the first place is that some lenders may see it as an indication that you would be defaulting otherwise. It's important that you, as a borrower, present yourself as appealing and as trustworthy as possible. You need to have good practices regarding financial recordkeeping. This is the best way that you can make your case as a borrower.

Once you are approved for refinancing, however, you will need to work with your lender to determine exactly what the terms of the loan will be. The more flexible the terms, the easier it will be for you to move forward without needing to revisit refinancing in the future. Give us a call today to learn more about whether refinancing is right for you!