50 year farm mortgage would it be insane or logical for farm families?

[Marusko]

What's the point of a 50 year mortgage? make the payments more affordable right? Extending the amortization has diminishing returns the further out you go.


1 million dollar loan at 5.5% interest
for 20 years, annual payment 82,546, total interest 0.650 million
for 30 years, annual payment 68,135, total interest 1.044 million
for 40 years, annual payment 61,902, total interest 1.475 million
for 50 years, annual payment 58,781, total interest 1.939 million

So to go from 20 year to 30 year, your annual payments are 14,411 less per year
but 30 year to 40 drops the payment by only 6,233 per year
40 to 50 is only 3,121 per year

and look how the total interest balloons at each step
The effect gets worse with higher rates

For those of us who read pictures better than words, look at these interest curves



???


when I see these numbers, the answer to me is no, a 50 year mortgage doesn't make sense. You're farming for the bank, not yourself. You've made a huge commitment. Huge risk if rates go up when you go to renew.

Many times the sell comes with a ridiculous land rent back to keep farming. So would it not make sense for these farm families to have a better chance at keeping their land and paying payments that resemble the crazy land rents? Wouldnt that keep generations of a family more probable and also allow the farm to benefit from the increasing values?

?
Farming land doesn't even cover the interest if mortgaged at today's values. For cashflow, it still makes more sense to rent. But if your payments are equal to what rent is, it makes sense to own it - having the risk of still needing to make the payments through poor years (while renting you have the option to walk away).

Are you talking about these investor deals with groups like Area One and Bonnefield? I've wondered how the rent arrangement works with those. A few years ago I heard of one farmer 20 miles away having to pay something like 250-300/ac in rent to some investor company, when market rent was 100-120/ac. Though I've heard a lot of things that turned out to not be true. Never heard if that was true or not, and of course it could be some kind of rent-to-own deal which changes the perspective.

[SASKFARMER]

It would drive up land values. Its like renting till you Die. but some day you will own it.

[makar]

Longer the term the higher the payment due to interest, a 25 or 30 year mortgage payments aren't that much different.

[furrowtickler]

It would drive up land values. It’s like renting till you Die. but some day you will own it.

Don’t bet on it , there is always someone with more money around the corner . No matter how wealthy you think you are
Blackrock through certain farms would out bid any farm in n western Canada in a blink of of an eye, even the most lucky well of farm anywhere instantly

[dalek]

How do the 100 year farm mortgages in Holland work? Kinda seems to me that there isn’t much difference between that and renting from the central bank/government

[wrongway]

i remember doing the math on a house mortgage in early 80's when interest rates were %14 or higher. one extra payment a year in the early years of the amortization schedule took a whole year off the end. so every renewal we would make the extra payment...it sucked because it cost us a hot holiday when all our friends seemed to be going everywhere...thankfully interest rates came down and as the mortgage matured the principle got paid off way faster.
I cannot even fathom these insane amortizations...truly there is a reason they don't teach math basics anymore.

[the big wheel]

some good points but what s not being considered imo is rents are paid and gone they
give you no value other than an expense, owning dirt is balance sheet useful gives you options. Land values are not based solely on what the dirt grows or produces its many more things now. Other people other countries want other resources of the land ie potash minerals etc etc thats besides other countries wanting to ensure their food supply decades down the road. Land is not going to go down like it has in the past. Sask land is still undervalued compared to the rest of the country. And thats the biggest part of my question and whats being overlooked. When your land appreciates over 10 to 15% per year theres that value to add to the balance sheet as well which is more than what rent is. And I dont think its right that farmers arent the ones that have the access to that appreciation.

[Old Cowzilla]

Most farmers only have access to that appreciation on sale day and a fair bit of that is an estate sale. Does always feel different driving over owned land compared to rented but million dollar question is always how much dirt does a guy need (rented or owned ) to make a living ? I don't need to know but my son will have to figure it out.

[wrongway]

recent history does indeed show that ownership is far far better than renting.
having started farming in the 70's i can assure you that the 80's to 2010 or so it was a very different time. yes ownership was slightly better than renting but there was virtually no asset appreciation for these 30 years. the high interest rates and asset devaluation that occurred then brought down many farm families.

[Taiga]

Having that asset base is what gives you access to money to grow. Hard to buy much with little to borrow against, whether that be inputs, machinery, more land.