The banks / equity in land line of credit

[ALLFARMER]

Just wondering if many are using this program
and your thoughts on it.

Not sure if this is a new program or not but
several banks are offering/pushing it. The BMO
at the Red Deer farm show was using it as a
conversation starter.

The deal is they come out and appraise your land
and pay out the current mortgage holder. You get
a mortgage backed line of credit. Not sure on the
interest rate as I was not that interested. The line
of credit can be used to purchase anything. Your
line of credit is something like 85% of whatever
your land appraises at. With the rise in land
values this could be major dollars.

[wilagro]

A good way for banks to take even more control of your life. They can't lose but you WILL unless you're more clever than they are.

I would say that its a measure to be used when you've exhausted and looking for a custom made solution. I'd be very, very cautious.

[mcfarms]

IMHO you never want to borrow against equity except for equity.
But what they are doing likely is bulding their loan books with so caled "good" debt so that they can lever it against there more risker debt and borrow money at a more favarobale rate. Do the words sub prime mean anything?

[mcfarms]

favorable ( I need to proof read more)

[hobbyfrmr]

I agree with wilagro on. This subject. We work
and live within reason to pay for the land we have
purchased/inherited. We farm, and pass the time
until our land values rise. I have frequently been
cash poor in my farming life. I know eventually I
will be able to either rent out or sell my land for
cash. The scary part of this BMO scheme, is that
they make me the farmer aware of how much
cash is available to me. I get all horned up and
start buying stuff on the credit line. Time goes by
and if I pay for the stuff I will be ok. If I don't, the
bank will definitely get me sorted out, and that
might mean parting with some of my land. So, it's
not very business like, and I won't be the coolest
looking farmer in the neighborhood, but I will keep
my properties for future use.

[parsley]

Folly could lie in :

1. Interest rates gong sky high
2. Loan repayment surprisingly called in .
3. Currency

Fineprint could do you in. I wouldnt touch this
one. Pars

[ALLFARMER]

Ya I think the biggest factor is your on a variable
interest rate. No control over huge dollars
financed. Rates go up you go down.

[wd9]

Ya good idea, start the slippery slope of
realizing the dream goal of foreclosure.

If you're farming right, you shouldn't
even need a line of credit. If you do,
time to make some changes.

[SASKFARMER3]

This is what the banks did with city property a few
years back, on a 750000 house they borrowed or
gave you a line of credit for 85% value, their
appraised value. Some neighbors went nuts new
cars trips boats renovations cottages etc. now if
the home values dropped boom their done also as
WD said variable rate and your pouched, great for
the banks.

[Choice2U]

Sounds exactly like a reverse mortgage on a house that has been around for several years. Old farts can borrow against their equity and pay interest only. Principal not paid unless they sell their house. Why do we worry about the stupidity of others? If a bank comes up with a stupid idea and there are idiots that bite on it, why are they considered crooks? If there is nothing illegal about it, I say buyer beware. "You are your brother's keeper" only goes so far. I would be the first to warn one about the risks which have already been identified but if someone still goes for it, so be it.