I just had a discussion with an Agribusiness lender at one of the "big 4". He mentioned one of the funding options for a farm I am looking at could include an interest rate "cap" feature, where you pay a premium over the variable rate for the ability to "cap" your IRs over the term of the loan (up to 10 years I think). This way you get exposure to market rates until they go over the cap, when they just get "capped" for you!
To me this seems on the face of it an ideal way to provide IR insurance and still get exposure to low rates when they come. We didn't get down to the specifics of what premium for what cap though which I imagine is a completely different kettle of fish! I'm just rather amazed I hadn't heard of the concept before... Perhaps it's not as attractive as they make it out to be? Does anyone have experience with these caps and are the premiums charged usually hefty or reasonable? Are they available on resi IPs at all?
Thanks!
To me this seems on the face of it an ideal way to provide IR insurance and still get exposure to low rates when they come. We didn't get down to the specifics of what premium for what cap though which I imagine is a completely different kettle of fish! I'm just rather amazed I hadn't heard of the concept before... Perhaps it's not as attractive as they make it out to be? Does anyone have experience with these caps and are the premiums charged usually hefty or reasonable? Are they available on resi IPs at all?
Thanks!
