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.

[Choice2U]

Ok...I started with an ambiguous sentence. The reverse mortgage has been around for a few years, not the house. lol

[wilagro]

And BANKSTERS have been around for even longer.

[Burbert]

Who needs more loans now, grain prices is
sooooooo, good, sell the stuff, don't
hoard it. Then run ta the banksters wit
yer cheque and squirrel it away fer a
rainy one.

[Daylate]

BMO will value your commodities at 75%. That's the
safest way of getting a line of credit. Sorry local
credit union, if you valued my inventory I would be a
customer.

[LEP]

First Equity Lines of Credit are very flexible and useful
to a good manager who makes good decisions. I have
several of these with low or zero balances. Over the
years I have used them to bridge capital purchase
downpayment and commodity sales timing, short term
equipment purchases, and land purchases.

Responsible credit use starts with the farm operator
understanding how additional debt affects their balance
sheet, cash flow, debt service requirements, etc. If you
don't know what is a reasonable debt level for your
farm, get educated.

Don't leave it to a banker to say what is or isn't a good
level of debt.

I was a banker for ten years and was often frustrated by
customers who would be loaded up with machinery co.
debt and new vehicle debt who thought that if they were
approved that they must have been creditworthy. Banks
were guilty of that as well.

These customers were a little shocked when I told them
the only requirement for equipment co. debt is a
downpayment and a pulse.