It's a Good Time for an Interest Rate Swap

If you need a commercial loan and would like the certainty of knowing what your interest rate will be, consider an interest rate swap. While typically offered by larger banks, Town and Country Bank is one of the only community banks in the area that offers these loans, which have several advantages for borrowers.

“Banks like floating or variable interest rates on loans, which increase or decrease with economic trends. But borrowers like fixed interest rates, which remain the same for the life of the loan and keep their loan payments steady,” says Joel Oschwald, Vice President of Commercial Banking at Town and Country Bank. “An interest rate swap gives everyone what they want.”

How it Works

When you apply for a commercial loan, Town and Country Bank will go to the marketplace and swap your variable interest rate for a fixed rate on the derivatives market. Your loan is still with our bank, and you still work with your loan representative here. The only change is you now have a fixed interest rate.

Advantages

A fixed interest rate gives you certainty about your payments. You know what they’ll be for the life of your loan. There’s no worry about your payments increasing if interest rates increase. And if they do, you save money.

“Interest rates are currently at a historic low, so it’s a good time to consider an interest rate swap,” says Steve Gnuse, EVP, Community Bank President (Springfield) for Town and Country Bank. A rate swap lets you lock in these great rates while they’re available.

That’s even truer for customers taking out construction loans, which may be broken into two separate loans. The initial, short-term loan during the construction phase has a floating or variable rate. The remainder of the loan is typically renegotiated after construction is finished, which could be two years later. Interest rates could have increased by that time, which would make payments higher.

Rate swaps can help. Borrowers from Town and Country Bank can get a fixed rate for the second phase of their construction loan by having the bank do an interest rate swap when they close on the initial loan. That means they’ll know what their fixed interest rate is possibly years before the second phase of the loan begins and will be able to take advantage of these low rates, which could save a great deal of money.

Who Should Consider a Rate Swap

• Borrowers who need a commercial loan for at least one million dollars, the minimum amount to get a rate swap.
• Borrowers who need longer-term loans.
• Typically, people who get interest rate swaps are business owners or developers seeking construction loans, or farmers buying farmland.
• Borrowers who plan to keep the subject property for the long-term. “I recommend swaps for borrowers who have more experience in the commercial market, who are sure they want to keep the loan for the long term,” Joel says. “That’s because if they get out of an interest rate swap loan early, they can incur costs.”

How to Get a Rate Swap from Us

If you want to see if an interest rate swap is right for your commercial loan, please call Joel Oschwald at (217) 321-3426 or Steve Gnuse at (217) 321-3619. Visit our Meet Our Business Bankers page to learn more about business banking opportunities in your area.