The churches are the backbone of any community. Due to low construction costs and low-interest rates, a lot of churches want a loan to meet their needs. The hardest part is they often can’t find funds that they require to thrive.
The churches are commercial enterprises; therefore, they require a commercial mortgage. church mortgages differ from a residential mortgage. When the church doesn’t have the cash to pay the existing loan, it will go for a refinance and get a new loan.
Here are a few points a church should consider before applying for a mortgage refinancing.
Understand the Rate of Interest
While applying for refinancing a mortgage loan, the church will pay the closing amount of the previous loan it had taken. The refinancing of a mortgage loan is also known as a Balloon loan. Many banks in the US refer to Balloon loans under a fixed rate of interest. It is misleading.
However, a fixed rate of interest is advantageous for a commercial mortgage as the rate of interest remains fixed for the church until it pays off the entire balance. Also, consider the future rates. The church will think carefully, where the interest rate might go in the future. If the price of interest will rise significantly in the coming years, then the church may go for refinancing now to lock a long term fixed rate at a reasonable level.
Like, if the church is paying a loan amount at a fixed rate of interest of 7% that matures in two years, the church can obtain a refinancing loan for ten years at 7.25% to get its benefits.
The Cost Might Exceed Benefits
Refinancing is a good option if the church is planning for a significant expansion. Some of the few expenses incurred in refinancing are insurance, escrow fee, documentation, legal fees, and environmental cost. The cost will give an idea of refinancing costs to calculate the monthly payment to recoup the price in the coming years.
Borrow What You Can Afford And For A Longer Period
Before mortgage refinancing, a church should only apply for a new one if it can afford to pay it. Only contributions and offerings are considered while paying interest.
Also, an extended period of loan payment will allow the flexibility to project its monthly expenses to pay the debt. This leads to lower payments. The church ministry affair will not suffer as it has a significant loan amount.
Quick Payment And Mitigate Long-Term Risk
The church income may be more some months than the others. It may use the extra cash to pay church mortgages to cut down the debt. Also, the prepayment penalty will affect the church mortgages refinancing. Therefore, take every opportunity to make an extra principal payment on your loan.
It is not possible to look at the future of the church ministry. Therefore, to avoid incurring costs and risks of refinancing every few years, the church should go for a loan for an extended period rather than the short term.
While applying for church mortgage refinancing, it must qualify for it. In some cases, the bank can’t or won’t refinance the loan; then it leaves the church to find another lender to keep their property.