Oct 18, 2017 01:02 PM
I know a producer who took out a 20-year loan for roughly $17 million a few years ago, when times were more prosperous. Like many farmers and ranchers today, he’s been forced to refinance with another lender to unlock the equity in the real-estate collateral that backed his original loan. By refinancing, he can access more money, which his farm operation needs today. But paying off his original loan early has come at an enormous cost: a “prepayment penalty” of nearly $5 million.
You might not expect to pay off your loan before it matures—but this can, and does, happen. As debt restructuring increases among farmers and ranchers in this low-price environment, it’s important to be aware of prepayment penalties before you sign a loan contract.