Understanding Your Rural Loan and Interest Rate Options

Buying a rural property—whether it’s land, a farm, or a house out in the country—is a major undertaking that requires a lot of planning. Not only do you have to decide on your budget, property, and other considerations, but you also have to research what loan is best for you. To make the right choice, it’s important that you understand the pros and cons of each loan type, such as their length, interest rate, and more.

Fixed Rate Loans

 A fixed-rate loan is a loan where the interest rate remains the same, or fixed, for the life of the loan, which can be anywhere from 5 to 30 years, depending on the specifics of the terms.

Fixed-rate loans are great for those looking for consistency and who want to lock in a rate and stick with it for a set amount of time. Fixed-rate loans are especially useful in volatile market situations. Even if market interest rates go up, a fixed-rate will remain the same. However, if market interest rates go down, the rate will also remain the same.

At Alabama Ag Credit, we take a slightly different approach. Our lenders can convert loans into a fixed-rate loan when it becomes best for your situation. We have access to the lowest rates possible, so if the market rate is lower than your fixed rate, you can request the lower rate. While you may have to pay a fee to start the new loan, you’ll never have to worry about whether you have the best rate available!

Variable Rate Loans (30-Day Adjustable)

The interest rate on a variable-rate loan may change from month to month. This means that variable-rate loans can offer competitive interest rates, but they also come with less consistency. With a variable-rate loan, you may not be informed of your new rate until as little as 10 days before it increases or decreases. While it’s possible to get a lower loan rate with a variable-rate loan than with other types of loans, there is also a risk that the rate will increase over time.

Due to the volatility of variable-rate loans, they are usually only recommended to those who have some flexibility in their spending and who are financially stable enough to handle the ups and downs that may occur. However, if it seems that interest rates will decrease in the future, a variable loan might be a good choice, as it could allow you to take advantage of lower rates in the future.

Adjustable Rate Loans

 A good middle-ground between a variable-rate loan and a fixed-rate loan is an adjustable-rate loan. An adjustable-rate loan lets you lock in a rate for a set period so you can take advantage of lower rates for longer periods. This provides consistency, at least for a time, but not to the same degree as a fixed-rate loan. There’s still some volatility and risk involved, as the rate may increase at the end of the period.

An adjustable-rate loan is typically used when the market interest rate is likely to decrease. If the market interest rate is set to increase, you’ll likely end up with a higher rate after the adjustment period. You won’t be able to predict how much of an increase there will be, however.

What Loan is Best for You?

What loan is best for you will depend on your specific situation. Feel free to reach out to us for more information about what loan types and options would be best for you. We’d be happy to help!