7 Benefits to Consider For Refinancing a Church
In a paradisiacal world, we wouldn’t have to think about church finances–we could put all of our efforts into ministering and praising. But until that day comes, we must deal with things of the mortal realm, and one of those is money. As leaders of churches, we are blessed with a humbling gift, which is the call of Malachi to bring all the tithes and offerings into the storehouse; we collect donations and offerings from our congregations and help to build the church. But we’re also directed to use these things wisely. As Paul taught the Corinthians, those who have been given a trust need to be faithful in its stewardship.
So how can we be better stewards of the money that we’ve been given to run God’s churches? We might start by taking a look at how we can better use what we’ve already been given: how we can take an existing debt and turn it into something that will better serve us and our congregation.
7 Benefits to Refinancing Your Church:
A Better Mortgage Rate
Perhaps the most common reason why people refinance, getting a better rate is definitely popular. And now rates are at historic, all-time lows. If you took out your loan when mortgage rates were higher than they are now–which is likely–then getting a better rate is definitely a way you can save yourself some money.
It may not even be a case of mortgage rates being lower–though they’re very low right now–but perhaps your credit has improved since you took out the original loan. Perhaps you’ve been consistent with your payments since you took out the loan and proved that you are deserving of a better interest rate. Refinancing to take advantage of this better credit is a benefit that could save you tens of thousands of dollars over the life of your loan.
And you always need to consider what that money could be used for. If you had tens of thousands more dollars, what would you do with it? Would you expand your current building? Build a gymnasium? Build a community center? Fund missionaries? Send children to youth camps? Feed the poor and homeless? There are a hundred good things that that money could be used for, and paying it to the bank because you have a bad interest rate is not one of them.
Lower Your Monthly Payments
When you refinance your church and get a better interest rate, you will be able to lower your monthly payments, particularly if your new loan has the same payoff date as the previous loan. You can also lower your monthly payments by pushing out the payoff date into the future. Either way you could be saving a lot of money every month.
Saving money every month will not only allow you to fulfill many of the good things that you’ve always wanted for your church–feeding the hungry and clothing the naked–but it will also help to ease the pressure that you may be feeling at the current moment as the world is recovering from a pandemic. It’s been estimated that 5% of all churches in the United States will have to close their doors in 2020, and some projections put the number at 30% by 2025. While we can’t forecast the future, we do know that donations have slowed as congregants have been unable to attend services, especially on Easter, which is one of the biggest donation days of the year.
Perhaps you’ve been struggling every month to keep the utilities paid. Perhaps you’ve been going hungry yourself as you’ve sacrificed to keep your church doors open to your community. Perhaps you’ve had to turn away the poor and sick during this difficult economic time–it’s been hard on everyone, everywhere–and you want to be able to help them better in the future. These are all worthy goals and refinancing your church would be a big benefit.
More Predictable Costs
Refinancing your church is a great idea if you have an adjustable-rate loan already. Adjustable-rate loans are attractive because they’re easier to get when you don’t have much in the way of a down payment or credit score, but they’re not good in the long term. When interest rates increase, your payments will increase, and that’s not something that anyone wants. It’s hard to forecast the costs of your church when you don’t know how much you’ll be paying every month. How will you be able to make decisions about the future growth of your church a year from now or two years from now?
Knowing the amount you’re going to pay every month means that you can say with certainty “Yes, we’ll be able to afford sending these church members on a mission trip for six months” or “Yes, we can afford to send all fifteen of our youth to Bible camp this summer” or “Yes, we’ll be able to build onto the current structure to better accommodate our growing soup kitchen.” Regular payments make the future more certain in an unpredictable world.
Shorten Your Term
Many borrowers are looking to shorten the length of their term–perhaps they’ve seen how volatile the market is and they’re looking to pay off their loan as quickly as possible, seeing it as the key to long-term financial stability. Shortening a loan from a 30 year to a 15 year is a very worthy goal and something that will help a church in an increasingly unstable economy. No one wants to be paying the bank every month, and if that burden was taken off their shoulders sooner–even if it means that your monthly payments go up a bit–it can definitely take some stress off a church.
With a cash-out refinance, you can borrow money against the equity you have in your church. Very often this can be used to put the money directly back into the building itself: renovating the church, replacing pews and artwork, fixing broken or outdated utilities and air conditioning. Perhaps you wish to expand the building, maybe even buy the plot of land next to your building to grow your capacity. While some of these additions to your current building can be made by member donations, often it makes more sense to make the additions now and help to increase your numbers with more pews, more parking, more facilities.
There’s also the possibility that the church has fallen on hard times–this isn’t uncommon in today’s post-COVID economy. Maybe the church has debts that need to be paid off that are more pressing than the mortgage on the building. Maybe you need the money to get through the lean year and make sure that the lights stay on and that the staff all stay fed. This is also a noble goal and a good reason to borrow money.
Combine Two Loans Into One
Consolidating debt is another reason why you’d want to refinance. You may have more than one loan for your church: there may have been more than one building project. You may have taken out a loan for the chapel and a different loan for the parking lot. Turning two payments–that could have higher-than-average interest rates–into a single payment with a lower rate (or similar rate) could save you in the long run.
This is also useful if there is a certain debt that has a tax-deductible interest (such as a mortgage), and another loan that doesn’t (such as a credit line). Consolidating the credit line into the mortgage will turn all of that interest into tax-deductible interest and that will lower your future payments.
Cancel Mortgage Insurance
If your church has lender-paid mortgage insurance, which is included in your monthly premium, you can eliminate that extra monthly cost if you have 20% equity in your property.
Mortgage insurance is designed to protect the lender if you should default on your loan, and when you don’t have more than 20% equity in your mortgage you can be paying some hefty insurance premiums on there that could very much be spent elsewhere.
When you go through the refinancing process your church will get appraised, and if it has gained value then that gain gets added to the equity in your church and if you cross the 20% equity threshold then the lender can no longer charge you mortgage insurance.
By removing the mortgage insurance premium from your monthly payment, your payments will decrease and you can spend that money elsewhere in your ministry.