What are the differences between a refinance and an interest rate conversion? Which option is best for you? How many times can you refinance or do an interest rate conversion? Learn more about the options available to you through both of these financial tools.
What is refinancing?
Refinancing means you are financing current debt(s) into a new loan. Typically, a refinance allows you to obtain a more desirable payment schedule to better meet the needs of your current financial situation.
There are a few extra steps involved in the refinance process compared to an interest rate conversion. Refinancing can require a new loan application, a credit report pull, updated financials (i.e.: balance sheet & tax returns, projections, etc.) and applicable loan fees such as an origination fee, appraisal fee, title policy, etc., and new loan documents. Refinancing can also take time to complete depending on the complexity of the refinancing request. Although there are some initial costs and time associated with it, the benefit of refinancing is the ability to adjust the structure of your loan agreement to match your current and anticipated future cash flow capacity of your farm business. Contact your loan officer to discuss the best possible options for your operation.
What is an interest rate conversion?
An interest rate conversion is the process of taking your existing loan and applying a new interest rate product to it. Compared to a refinance, there are only two requirements: a modest fee for the process and a signature on the conversion agreement document reflecting the interest rate product selected. There’s no need to submit updated financial information, we do not pull your credit report or require a new appraisal of the collateral pledged to secure your loan.
A rate conversion is a more streamlined and cost-effective process, as it requires a signature on the interest rate conversion document and a one-time fee for a lower interest rate. For example, say an original promissory note was written as a 20-year loan, you have made all your payments on time for the 3 years you’ve had the loan and interest rates have since declined. It is possible to convert this loan to a 17-year fixed interest rate product or a shorter term if you so choose. The conversion document will state your new interest rate, new payment amount and when the new payment amount will begin. Another perk is a rate conversion agreement can be completed online via DocuSign, providing a convenient option for you to sign from anywhere! There is no limit as to the number of times you can utilize this option.
GreenStone provides a unique opportunity for our members to convert adjustable and fixed rate loan pricing. The interest rate conversion feature of your loan agreement provides you with the opportunity to lower your interest expense in a declining rate environment. Members taking advantage of this option occurs when there is an opportunity to pay less interest over the remaining life of the loan and potentially pay it off earlier than expected.
Which option is best for you?
No matter which option you’re considering, it’s always best to speak with your financial services officer to discuss your operation and the financing options available. Working with your lender to determine the right time to use either of these financial tools is always the best idea. Reach out to your local GreenStone branch today with any questions on refinancing or interest rate changes!
This article was originally published in Michigan Farm News.
