Church Refinance Loans: 7 Benefits of Refinancing Your Church
Are you a church Pastor or church leader with a mortgage loan you haven’t paid off? Do you need a solution that helps you keep your church doors open? If the answer is yes, then this article is for you.
But first, did you know churches around the US are quickly embracing external financing solutions? Fortunately, they have several options, from church-building loans to church refinancing projects.
Interestingly, they were reluctant to explore these financing options. However, churches now understand that this isn’t an ideal world where their regular income (tithes and offerings) can cover all their expenses. So, most churches take building or renovation loans. But unfortunately, they sometimes lack the income to pay back these loans.
So, what can you do if you are faced with paying back an existing loan or losing your church?
This is where loan refinancing comes in. Loan refinancing is a significant alternative for borrowers who can’t pay back their loans in the US. In 2021, Black Knight reported that about $2.7 trillion in mortgages were refinanced. Therefore, many Americans are taking advantage of loan and mortgage refinancing.
Your church should also consider loan refinancing, as various church loan refinance options are available with numerous benefits. However, before we get to that, let’s discuss church loan refinancing in detail.
When you hear church loan refinancing, you might think it is different from the traditional forms of loan refinancing. But it isn’t. Essentially, loan refinancing is replacing one credit obligation with another.
You’ll commit to a new loan or loan agreement when you refinance your church loan or mortgage. In addition, this second arrangement may give you a better interest rate and, and you may negotiate more favorable loan terms and conditions during the refinancing process.
A church refinances loans when they take out a new one to pay off older debt. After that, you must repay the new loan based on the new arrangement. You can request better repayment conditions when negotiating during the loan refinance process. After all, there’s no use refinancing a loan if it has the same provisions as the old one.
Thankfully, there are several refinance options, so you’re not stuck with one. However, we should point out that these refinancing options can overlap through their features.
Below are the types of church refinance loans.
As the name implies, rate-and-term refinancing involves renegotiating your church loan’s interest rate and repayment term. It’s the most popular form of church loan financing.
Usually, rate-and-term financing requires repayment of the original loan amount with the refinanced loan. After that, you may get a lower interest rate on the new church loan.
Furthermore, you may get more favorable loan terms with the new loan. You’re exploiting a favorable economic environment to renegotiate your loans, making it a great option.
Cash-out refinancing usually occurs when the loan collateral has increased in value. Often, churches can get a higher loan when this happens. With this option, you can withdraw the equity in the asset in exchange for the higher loan amount.
You don’t have to sell the loan security to access its increased value. Instead, you can use that value by getting another loan. This refinancing option will raise the total loan amount, but it’ll give your church access to cash.
One benefit of this option is that you can use this money to offset any church needs. Also, you may negotiate a better interest rate and loan term to keep the increased loan amount from hurting the church’s ability to repay the loan.
If you dislike cash-out refinance, this option is for you. With cash-in church loan refinancing, you take out a loan to repay the earlier borrowed amount. One point in its favor is that you don’t get a higher loan. Also, you will have a lower loan-to-value ratio (LTV) if you reduce your total loan amount.
This option is exciting as it allows you to repay several church loans. Here’s how it works: first, you take out a higher loan with lower interest rates. This new interest rate is usually lower than what you currently pay for other church loans.
Then, you’ll use this new loan to repay your existing debts. As a result, you’ll have only one remaining loan principal and the sum of your new loan to repay.
A consolidation is an excellent option if you have several church loans from the same or multiple lenders. This arrangement can help you narrow everything down to one lender and loan agreement.
Now, loan refinancing has several advantages. But summarily, it makes burdensome loan repayment responsibility more bearable. So, below we explain the seven primary benefits you’ll enjoy when your church refinances loans.
1. You’ll May Get a Lower Interest Rate
This is one of the main reasons churches refinance loans. Depending on the repayment length, interest payments often amount to a significant percentage of the total amount.
However, you can escape this with loan refinancing. For instance, suppose you took out a 25-year church loan at a 7% interest rate twelve years ago. You can qualify for a lower interest rate today; that’s as low as 5.5%.
Therefore, you’ll save about 1.5% of the interest rate with a refinancing option. This sum can amount to thousands of dollars a month, depending on the size of the loan, money that your church can invest in other projects.
Notably, loan rates are currently increasing. So, if you took a church loan when the rates were high, now’s the best time to refinance and get a lower interest rate, before the rates go even higher. You don’t need interest rates to go down before refinancing.
Instead, you may be eligible for a lower interest rate if your church is in a good financial position. On the other hand, poor financial stability can often increase your interest rate and chances of unfavorable loan conditions. So, if your credit improves, you can renegotiate to pay less interest.
2. It Allows You to Enjoy Predictability in the Repayment Process
Did you know financial institutions can impose fixed or variable interest rates on church loans? A fixed interest rate means the interest rate of a loan does not change during the term of the loan.
For example, you could pay 6% interest on a $10 million loan. However, a variable interest arrangement is a different issue. Your rates aren’t specific; instead, they’re adjustable and fluctuate depending on whatever index they are tied to.
Therefore, you can refinance your church loan to move from a variable interest rate to a fixed interest rate. Then, all you have to do is include this term in renegotiating the new loan agreement.
Now, suppose the lender agrees. Then, you’ll reap significant benefits, including:
- Achieving certainty on your interest rate until the loan term ends
- Saving money that you would ordinarily lose whenever your interest rates fluctuate higher
- Reducing the total amount of money you’ll repay on the loan agreement
- Ability to plan better for your church since you’ll know the exact amount of money you’ll spend on loan repayments monthly
3. There’s a Lesser Loan Repayment Period
Loan repayment periods are vital to borrowers, and the loan term determines how much you’ll repay. The longer your repayment period, the more money you spend, and vice versa.
You can renegotiate your loan term during refinancing discussions. Shortening your repayment period from 25 years to 10 is an excellent idea if the church can afford the payment. Firstly, it’ll help you save on the interest you’d have paid for those 15 extra years.
In addition, you get to escape the uncertainty and volatility of the financial markets. The truth is no one knows how much the economy can change in those 15 years, not even financial analysts. But you can evade any bad economic turns by refinancing.
4. You’ll May Have Lower Monthly Payments
No one loves to pay back loans monthly, and it is tiring to do so until you’ve repaid the principal and interest. Also, the amount of money you pay monthly is a big issue.
First, it affects how much your church has left. This, in turn, determines how you plan for other expenses. So, all your planned church projects depend on your monthly loan repayment sums.
Moreover, high monthly payments will reduce the money accessible to your church. Fortunately, you can fix this issue with church loan refinancing. There are two ways to reduce your monthly repayments:
- Extending the loan repayment date, or
- Setting the repayment date on the same date as your previous loan.
Whichever option you pick, you’ll save a lot of money and have some extra dollars for your recurrent monthly expenditure.
5. You Can Consolidate Multiple Loans into One
Loan consolidation is another exciting benefit. You can combine multiple loans into one, which is generally a good idea if it will save the church money. For example, a church may have different building projects.
Conversely, you may have a building and renovation project and still need a loan for immediate and emergency expenses. Whatever the case, you can combine them all in a refinancing arrangement.
For example, you can combine the following:
- Two church loans with high-interest rates into one loan with low interest, or
- One church loan with high interest and another one with low interest.
6. It May Allow You to Borrow More Money
As mentioned, cash-out refinancing may allow you to borrow money based on the equity you have in the church. Therefore, you can pour the money into church buildings and other projects.
What if your church is facing significant financial challenges?
Then, external financing may be a better source of funds than drawing from your regular income. You can fund those projects from your tithes and offerings whenever you fix your liquidity issues. Until then, allowing your church to refinance loans gives you immediate cash and lets you negotiate the loan term with your lender.
7. It Helps You to Save Money and Invest
Who doesn’t love saving money?
Loan refinancing may help your church save money, and you can achieve this through all the refinance types discussed earlier. You may save money by reducing your interest rate or shortening the loan term, and you can invest this money back into your church.
Your savings will be significant enough to pour into the following:
- Outreach programs and church groups
- Staff training, salaries, and other benefits
- Church maintenance, remodeling, and renovation projects
- Evangelical missions
- Stand-by emergency cash reserves for the church
- Church support and welfare funds
The good thing is that you don’t need to expend further effort to save this money. Instead, refinancing saves the money you’d have paid your bank or other financial institution. That’s a win for your church and ministry, and we love wins.
We’ve discussed what loan refinancing means, its types, and its benefits. But how do you commence the process?
The first thing to note is that borrowers — the church, in this case — usually initiate loan refinancing. It begins with making a formal request to a lender. This lender could be an existing partner or a new financial institution.
So, you must examine your current loan agreement and remember to look for any prepayment penalties. These clauses impose restrictions and penalties on repayment of the church loan before the due date.
Suppose there’s such a clause in your church loan agreement. Then, a refinance may not be wise. This is because the penalties may be higher than the money you’ll save from the lower interest rates.
Suppose you confirm the absence of prepayment penalties. Then, you can take the following steps:
- Check the amount of your current loan.
- Find a church loan expert to work with.
- Decide what you want to achieve with a church refinance. This is where you choose from more extended repayment periods, lower interest, or any other benefit we explained above.
If you’ve completed these stages, you can apply to a financial institution for refinancing.
One vital question is: when should a church refinance loans?
You don’t have to worry about answering this question, as we have provided the answers below. So, here are the top two times when it’s best to refinance your church loan:
Your church’s economic situation is said to have changed when you can afford to repay an existing loan in a shorter period. For example, suppose your church comes into new money. Offsetting your existing debts will be a wise decision. You can request to repay the loan in a shorter period at this stage.
Imagine a nationwide economic improvement. Then, refinancing your church loan will be an excellent move. For example, when interest rates decrease from the rate you originally got when you took the loan out.
So, if you refinance a loan and get a better rate then you are repaying your church loan at the lower rate.
Like all financial decisions, refinancing has some risks. Therefore, it’s vital to understand these dangers before engaging any church refinance loans. For instance, we’ve already explained penalty clauses.
A significant penalty for early repayment takes away the juice from church loan refinance. So, it’ll be best to consider this factor when negotiating new loans for your church.
Here are other things to note.
Your church may have to pay closing fees when refinancing loans. Closing costs are the fees and expenses you’ll incur when replacing your existing loan with a new loan arrangement. It is noteworthy that there isn’t a general figure for loan refinancing costs.
However, you can expect to spend 4% to 8% of your loan balance as closing fees. Therefore it is best to ask your lender about the closing costs for loan refinancing.
There’s more, though. You may have to pay some of the closing fees upfront; if you don’t, you’ll have to pay more on the new loan amount and interest.
Examples of closing costs for loan refinancing are:
- Application fee
- Underwriting fee
- Recording fee
- Appraisal fee
- Survey fee (where applicable)
- Cost of title services, and
- Legal fee.
Closing costs for loan refinancing may seem small because they’re in percentages. However, they’re often significant sums of money. For example, suppose you have $150,000 left on your loan.
Now imagine that the closing costs for refinancing the loan are 5%. Then, you’ll end up paying about $7,500. If your loan amount is $300,000, you’ll pay $15,000 for closing costs.
Also, these two tips can help you:
Some fees that make up the closing costs for loan refinancing may be unnecessary. For example, paying for another survey will be a waste if you’ve recently surveyed the property. So, you can speak to your lender to see if they will allow the old survey to be used.
Now that you understand the importance of church loan refinancing, you can also see the steps to initiate church loan refinancing. So, all that remains is to take bold action and approach your lender to refinance your loan.
However, you must not make this move lightly. Instead, it’ll be best to consider all your options and the costs of a refinance before embarking on church loan refinancing. Speaking to a professional is thus an intelligent decision.
Of course, you don’t want to get a new loan that’s costlier than the existing one unless you have no choice. Therefore, you need guidance and information on church refinance loans and other external financing options. We would love to provide a great loan for your church!
Our website has rich resources on church financing and refinancing. So, you can read and get as much information as you want. You can also contact us for a no obligation, free quote.