REGINA – Farm Credit Corporation last week unveiled a new loan program designed to ease the intergenerational transfer of farm land.
Federal agriculture minister Ralph Goodale announced the Family Farm Loan will be available this fall to eligible borrowers.
Believed to be the first of its kind in Canada, the program will allow FCC to approve a loan to the buyer of up to 90 percent of the appraised value of the property. The seller will then receive a portion of the fudns immediately (usually about 40 percent) and the remainder over the next five years.
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Goodale said the program provides the vendor with a way to help the next generation while getting his or her money faster and continuing with retirment and estage planning.
“At the same time this product provides the purchaser with a manageable down payment, significant interest savings and fast equity growth,” he said. “The buyer’s payments are based on the total amount of the loan, so the buyer builds up equity faster than a conentional loan.”
For example, assuming a purchase price of $100,000, the buyer makes a down payment of $10,000 and obtains a Family Farm Loan for $90,000, amortized over 20 years, at 10 percent interest, locked in for five years.
If the purchaser continues with the annual $10,490 payments after the fifth year, when the vendor is paid out, the loan will be paid off in 9.5 more years. The interest saving will be approximately $58,000 compared to a conentional loan.
Participants have the option of a fixed or annually adjusted interest rate.
Also, a vendor risk reduction option allows the seller to register a second mortgage on the balnace owing, providing additional recourse in case of default.
The program is not limited to transactions between family members; anyone who qualifies under the FCC Act is eligible.
Goodale said the program was developed following discussions with farmers.
Gerald Penney, FCC president and chief executive officer, said each family has its particular needs, and changes in the program could be made.
“There are those who have advised me along the way that the product we have developed is more easily suited to the cash crop type of farm that we have on the Prairies, although we feel that it is readily adaptable to farms right across the country,” he said.
“We’ll be working with farmers in other commodity groups, including the supply management categories, to either modify this particular product or develop a whole new product.”
