Church Refinancing
As your congregation grows, your current financing may no longer be the right fit. If you need to access the equity in your property, or your current loan has high interest rates, or a final balloon payment is coming due, our church refinancing program may be the right solution.
Our church mortgage refinancing specialists will review your goals and needs with you, evaluate your current mortgage, and help you explore whether or not refinancing your church would be beneficial.
Church Refinancing Strategies
Refinance to the Extend Term
Church mortgages are typically shorter than home mortgages, leaving congregations facing a large “balloon payment” at the end. Church refinancing turns the large balloon into small monthly payments.
Refinance for Lower Rates
When you purchase a new church building, lenders may use hight interest rates to offset risk with a new borrower. Later on, church mortgage refinancing can often secure both better terms and lower rates.
Refinance to Free Up Equity
Cash out church refinancing frees up the equity that is currently hidden away in your building. You can use this cash to refresh your current property, purchase another property, or even for operating funds.
Church refinancing as a strategy
Over the life of a faith community, there are a number of instances when church refinancing empowers the community to grow and fulfill its mission. From property upgrades, to purchasing new facilities, to lowering debt costs, to building a new location, refinancing helps your community reach its goals.
Because there are so many uses for church mortgage refinancing, our church consultants start by understanding your congregation’s current situation, challenges, and goals. We can then help your leadership to understand the options and evaluate the pros and cons of refinancing.
In this consultation process, our job is to enable you to make informed decisions. Just because new financing can be obtained, that does not mean that it should be obtained. It all comes down to whether refinancing will save your church money, stabilize your month-to-month cash flow, or free up funds to accelerate your ministry. If it doesn’t check one (or ALL) of these boxes, then we typically recommend against church refinancing.
When is the right time to refinance a church mortgage?
There are many factors impacting whether or not church mortgage refinancing should be pursued. For the majority of faith organizations, the prime rate (that is the rate set by the Federal Reserve which determines what banks are charged to borrow from the government) is just one factor. Often, things like current goals, cash flow, payment history, asset value, equity, and lender’s interest are more influential. The decision to refinance, then, is made off of a range of factors. Do you have the right church lender? Are the right terms available? Is refinancing a pending necessity (as in short-term financing that needs to be converted to a long-term loan)? Is there a proactive operational plan that can be activated by a chuch refinance?
In sum, the right time to refinance your church is based on a combination of your goals, a network of circumstances that align those goals with the right financing options, and the community support to follow through on your plan. At Faith Based Funding we specialize in helping your leadership analyze and balance all of these factors to make a smart decision.
What church refinancing options are available?
A broad variety of financial tools can be used for church refinancing. Long-term refinancing takes a look at the loan you have now and refinances the amount owed over a new period of time or “term” – usually 10 to 30 years. By lengthening the term, congregations pay less per month, allocating money to other important areas of their budget. By shortening the term, churches reduce the amount of time that debt is owed on a property, allowing them to move money into other important areas of their ministry.
Low interest options for church mortgage refinancing help faith communities reduce the cost of money. The interest rate is the cost of borrowing, tacked on to the principal of your loan. By refinancing with a lower rate, faith communities can choose to pay off their loan sooner, by adding the difference to principal payments, or reduce monthly costs, freeing up cash flow for other purposes.
When a congregation needs a lump sum for another purpose, it can use a cash-out church refinance to leverage the equity held in the property. With a property improvement specified cash out refi, a church can refresh their facilities, build additions or refinish parking areas or beautify the property. Funds can be applied to other projects as well, so long as the use of funds is approved by the lender.
Bridge financing works similarly to cash out refinancing, but with a shorter term on the loan. These loans are typically repaid in 1 – 3 years. With this approach, lenders leverage a property you currently own to provide access to funds in a matter of days. These funds can be used for any purpose, including supplementing your operating budget, expanding your ministries, purchasing a new property, renovating a current property, and more.
Each of these church refinancing strategies has its own unique pros and cons. Our team of church lenders works with your leadership to analyze your current goals and identify which approach will help get you there fastest and with the lowest cost.
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Step 2: Connect
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What are the rates & terms?
The rates and terms for refinancing a church mortgage are determined by a variety of factors.
Most importantly, the financing product selected, the amount of the loan, the value of the property, and the financial track record of the church will each have significant impact.
In today’s market rates start as low as 4.5% and the loan term can be as long as 25 years.
What types of church loans can be refinanced?
Most types of church loans can be refinanced. When looking at physical properties, churches, temples, mosques, and meeting houses can qualify. In addition, high value equipment can be refinanced. In many cases, financing that has previously been used as part of the operating fund can also qualify.
Ultimately, our team of consultants is always looking for the lowest cost of capital available. This means that at times we will recommend that one asset (such as real estate) can be used as collateral to pay off a different type of financing (such as equipment, furniture, or a credit card).
In the end, there are many different strategies that can be leveraged, but the goals of refinancing are always the same: To decrease costs, to stabilize cash flow, and to activate the maximum amount of funds in service of your organization’s mission.
Is it a good idea to consolidate and refinance multiple loans at once?
In many cases, different loan types can be bundled together and simultaneously paid off in a single refinance. A constructive use of consolidation could be a portfolio loan that combines multiple properties, multiple congregations, or even multiple sources of donations and cash flow.
Sometimes the purpose of consolidation is extending the financing terms. This can avoid large “balloon payments” that are typically due at the end of a commercial loan. (And, yes, in the financial industry church loans actually fall into the commercial category, as opposed to a loan taken on by a single individual.) Consolidation can also decrease monthly payment amounts in order to stabilize month to month cash flow.
Other times consolidation serves to decrease interest rates. By joining multiple assets as collateral for one loan, the lender is better secured. This means that they feel safe enough to decrease the interest charged to the church. In the end, that translates into lower monthly payments, smoother cash flow, and long-term savings.
Finally, in the case that a faith community has become overextended, refinancing can lower monthly payments. In certain situations, this could possibly include a refinance of credit to a low or limited time no interest rate in order to balance operating funds and pay down debt.
What is the difference between a church refinance and a renegotiation?
Refinancing a loan occurs when a new loan pays off prior existing debt. Completely new loan terms are applied, and the church most often pays a different servicing company when they make monthly payments.
Renegotiating a church loan, on the other hand, doesn’t replace the prior debt. This process can occur with organizations that are generally in good standing, but a significant circumstance has led the organization to risk of default. This is an especially fruitful direction when an entire market or economy has shifted. By renegotiating, lenders maintain income and borrowers maintain ownership.
For a church property that has little use as a shopping center or apartment complex, there may be an option to renegotiate, even without an economic crisis. Our team can help you figure out which options are available in your situation, and map out the plan for next steps.
Are there alternatives to church refinancing?
Absolutely! While a church refinancing can be a very powerful fiscal strategy in the right situation, it is far from the most common type of church lending.
Church mortgages are one of the most popular types of financing, and are typically used for the initial purchase of a building or property. In other scenarios, a congregation finds there is no real estate for sale that meets their needs and instead opts for a church construction loan to build a new property. Or, when a building is owned outright but needs a remodel, then church renovation financing often offers the lowest cost and best terms.
Church equipment financing is often used when a community needs new audio visual equipment, to update their HVAC, kitchen, or technology, or even to add a new playground. But if additional buses or vans are needed, then church vehicle financing is the best fit.
At Faith Based Funding, our church lending specialists will work with your leadership to explore all available options, evaluate the pros and cons of each, and support you in finding the right solution to support your congregation’s growth.
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