Mortgage rate direction?

[AlbertaFarmer5]

Which direction is the biggest risk for mortgage rates right now?
If the entire system doesn't collapse, and the powers that be lose control of rates, Down or steady would appear to be the only paths possible for a long time yet. I half jokingly suggested to my banker today that mortgage rates might yet go negative, he didn't disagree.

Longer term, much higher rates seem to be inevitable, once reality returns, the risk just doesn't justify the reward at these rates. The trouble is, that argument has been valid for most of my career, but acting on it hasn't exactly been a good business move.

I have one mortgage that came up for renewal this spring, I left it floating waiting for a better opportunity. Was offered 2.39 fixed for 5 years today. Significantly cheaper than floating rate right now. This is the biggest mortgage.

A year ago, and against my better judgement, I locked in a 5 year mortgage, since my crystal ball didn't show Covid yet, and I wasn't certain what would trigger lower rates, or how soon, so I took what looked like a great rate at the time, and it was better than the floating rate. It would take almost a year to break even after paying the penalties to break it.
A third mortgage would take just over a year to break even at the lower rates. But if posted rates drop, the penalty will drop too( only on this one), so I'm inclined to gamble a little longer on this one before breaking it, but pay the penalty right away on the other one.

Which leaves the question, of getting greedy and leaving them float until the next rate cut, or lock them in right away to justify paying the penalties. The higher floating would make the payback on paying the penalties much longer.

Am I nuts to hold out for lower rates in this environment? I definitely want to lock them in within the next year or 2 before either a recovery, or collapse drives rates higher, probably a lot higher in the case of the latter(and it may not matter anyways in that event).

Is anyone seeing cheaper rates anywhere else available on farmland?

[Ache4Acres]

Sounds crazy cheap but rates are going lower

One doesn’t have to worry about rising rates anytime soon. We haven’t seen anything yet. I would Hold out for negative rates where they pay you to borrow money

[Austrian Economics]

Which direction is the biggest risk for mortgage rates right now?
If the entire system doesn't collapse, and the powers that be lose control of rates, Down or steady would appear to be the only paths possible for a long time yet. I half jokingly suggested to my banker today that mortgage rates might yet go negative, he didn't disagree.

Longer term, much higher rates seem to be inevitable, once reality returns, the risk just doesn't justify the reward at these rates. The trouble is, that argument has been valid for most of my career, but acting on it hasn't exactly been a good business move.

I have one mortgage that came up for renewal this spring, I left it floating waiting for a better opportunity. Was offered 2.39 fixed for 5 years today. Significantly cheaper than floating rate right now. This is the biggest mortgage.

A year ago, and against my better judgement, I locked in a 5 year mortgage, since my crystal ball didn't show Covid yet, and I wasn't certain what would trigger lower rates, or how soon, so I took what looked like a great rate at the time, and it was better than the floating rate. It would take almost a year to break even after paying the penalties to break it.
A third mortgage would take just over a year to break even at the lower rates. But if posted rates drop, the penalty will drop too( only on this one), so I'm inclined to gamble a little longer on this one before breaking it, but pay the penalty right away on the other one.

Which leaves the question, of getting greedy and leaving them float until the next rate cut, or lock them in right away to justify paying the penalties. The higher floating would make the payback on paying the penalties much longer.

Am I nuts to hold out for lower rates in this environment? I definitely want to lock them in within the next year or 2 before either a recovery, or collapse drives rates higher, probably a lot higher in the case of the latter(and it may not matter anyways in that event).

Is anyone seeing cheaper rates anywhere else available on farmland?

We're headed for negative interest. Denmark already has negative interest mortgages. Swiss banks pay negative interest on saving accounts. It's inevitable with a fiat currency. Periodically, central banks can try to push rates higher, but they never get very far without causing cascading defaults and then they throw in the towel. If debtors don't get relief, then the banking system itself begins to collapse. I wouldn't lock in a mortgage rate for more than five years, for sure.

Once rates go negative on a broad scale, where even corporate paper pays negative interest, the economy will be consuming capital at a torrential rate. The collapse of the currency would not be far behind, with a Zimbabwe style inflation the result.

[Partners]

Not sure on farm land.
Houses in Humboldt selling like wild fire recently.
Lowest rate so far 1.94 locked for 5 yrs..
Machinery 3.2 locked for 5 yrs..

[AlbertaFarmer5]

Not sure on farm land.
Houses in Humboldt selling like wild fire recently.
Lowest rate so far 1.94 locked for 5 yrs..
Machinery 3.2 locked for 5 yrs..

Who is offering the 1.94 on houses? We actually have residential mortgages on bare farmland to get the better rates.

[AlbertaFarmer5]

We're headed for negative interest. Denmark already has negative interest mortgages. Swiss banks pay negative interest on saving accounts. It's inevitable with a fiat currency. Periodically, central banks can try to push rates higher, but they never get very far without causing cascading defaults and then they throw in the towel. If debtors don't get relief, then the banking system itself begins to collapse. I wouldn't lock in a mortgage rate for more than five years, for sure.

Once rates go negative on a broad scale, where even corporate paper pays negative interest, the economy will be consuming capital at a torrential rate. The collapse of the currency would not be far behind, with a Zimbabwe style inflation the result.

But would negative rates translate into negative rates on a mortgage, especially locked in? Sounds like where it has been attempted, actual mortgage rates did not go negative, with Denmark apparently the exception.

Do you mean you wouldn't lock in for a term longer than 5 years, or you would wait more than five years to lock in a mortgage?

[Partners]

Who is offering the 1.94 on houses? We actually have residential mortgages on bare farmland to get the better rates.

RBC..is the place.

[Austrian Economics]

But would negative rates translate into negative rates on a mortgage, especially locked in? Sounds like where it has been attempted, actual mortgage rates did not go negative, with Denmark apparently the exception.

Do you mean you wouldn't lock in for a term longer than 5 years, or you would wait more than five years to lock in a mortgage?

I wouldn't lock in for more than 5 years for sure. Maybe not more than one year. Rates will be going down again once the full impact of the recessions hits. There's little to no reason to expect rising rates for the next several years, so I doubt that any favorable opportunities to lock in a rate will arise. Keep in mind that the other driver of interest rates is business demand for capital. In a recession that goes down.

It will take time for interest rates to go negative and for a house mortgage to be available on those terms. Short term goes negative first, then gradually the whole yield curve gets dragged down.

Central banks cannot just sit at a zero overnight rate forever. As debt builds exponentially in a fiat system, debtors need perpetual relief by means of falling rates. If rates don't go negative, then pressure in the financial system just builds until defaults soar and banks fail.

The restoration of gold as money would arrest this calamity and start the healing process. But there's not much support for honest money these days.

[Ab7]

Who is offering the 1.94 on houses? We actually have residential mortgages on bare farmland to get the better rates.

2.64 five year at Afsc Alberta
Cheaper yet if your a young farmer

[Richard5]

Doesn't really matter what the rates are if you are a 14000 acre farm and 18 million of debt or a 24,000 acre farm and 40 million of debt.

Those that get scammed into a lease would have debt over and above mtg debt and at higher rates.

Interest is a slow bleed that can get of control very fast if not managed properly or the farm is not profitable. Lowering interest rates any further will just drive up prices of certain things. I sort of wished they would have left the rates as is instead of the last change. I am still paying and will enjoy the lower floating rate for the time being.

As to the opening numbers, just throwing them out there as I don't think anyone in the right mind would have such a level of debt to acre ratio. If they do, then I would be very worried.

[AlbertaFarmer5]

I am still paying and will enjoy the lower floating rate for the time being.

What do you define as the time being? Before you lock in?

My issue is that floating is higher than 5 year. If the market is working that tells us that investors/banks see lower rates going forward.

[Oliver88]

Doesn't really matter what the rates are if you are a 14000 acre farm and 18 million of debt or a 24,000 acre farm and 40 million of debt.

Those that get scammed into a lease would have debt over and above mtg debt and at higher rates.

Interest is a slow bleed that can get of control very fast if not managed properly or the farm is not profitable. Lowering interest rates any further will just drive up prices of certain things. I sort of wished they would have left the rates as is instead of the last change. I am still paying and will enjoy the lower floating rate for the time being.

As to the opening numbers, just throwing them out there as I don't think anyone in the right mind would have such a level of debt to acre ratio. If they do, then I would be very worried.

$1285 per acre debt and $1666 per acre debt seems like a banker might be asleep at the wheel?

In your opinion what is an acceptable debt/acre or debt/equity ratio?

[mbratrud]

The 5 yr rates are appealing, but a 10 year at 3.4 sure offers security for a long time.

[blackpowder]

$1285 per acre debt and $1666 per acre debt seems like a banker might be asleep at the wheel?

In your opinion what is an acceptable debt/acre or debt/equity ratio?

Your banker would be happy to share those ratios. Those numbers would possibly fly here.

[tweety]

$1285 per acre debt and $1666 per acre debt seems like a banker might be asleep at the wheel?

In your opinion what is an acceptable debt/acre or debt/equity ratio?

Those things like debt/equity, ROI etc don't matter in farming.