"Ministry Mortgage Loan Options"
When beginning the search for a ministry mortgage loan it is important that ministry’s understand the standard church & ministry loan features and options they should expect from church & ministry lenders and what are unique and options that are available but more difficult to find.
A detailed search of national and regional ministry lenders unveiled some standard features and options that most ministry lenders offer to their ministry clients. You will find these features in almost every loan program that you compare in your decision making process.
The first standard feature is the interest rate of the mortgage loan. This is the single most often used benchmark by borrowers in determining the attractiveness of a church loan. Obviously, your ministry desires to secure the lowest interest rate possible. Church Mortgage Solutions consistently presents churches with lenders that offer church loans at below-market rates. This simply means that whatever the prevailing interest rate might be for a certain size loan we have church lenders in our network of financial institutions that provide rates substantially below the prevailing market norm.
The Term has to do with the period for which the loan is given. Typically fixed term periods are for 3, 5, and 7 years. In other words, a church lender will provide a church loan with a fixed interest rate for a determined period of years. Most churches opt for a 5 year fixed rate church loan. At the end of this “call period” the church lender could either reissue the call by once again fixing the interest rate based upon current interest rate ranges or they could “call the note” meaning that they will not renew the loan for another period of time and the church must find a new lender. Most church lenders will customarily renew the loan unless there has been a problem with or within the church that places it in a higher risk category, such as a poor payment history. Calling a note is very rare and most of the church lenders with the Church Mortgage Solutions lender network have never called a note. Various adjustable rate options may adjust on a monthly, quarterly, semi-annually or annual basis based upon the Church’s needs and interests.
Debt Consolidation helps to consolidate ALL indebtedness into a single church loan. This typically lowers the blended interest rate producing lower and more manageable monthly payments. Some church indebtedness is unsecured, meaning that there has been no security offered to the church lender who loans the money. Unsecured debt typically results in a higher interest rate and less favorable terms. Debt Consolidation can make a lot of sense to some churches in order to reduce the monthly payment required to service church debt.
Equity Lines of Credit and other Cash Out options. Equity Lines of Credit are based upon equity in the current church property. These lines of credit may be revolving or non revolving. This means that a Line of Credit for $50,000 is available to the church much like a revolving credit card whereas a non revolving line of credit for $50,000 is more like a loan that the church steadily pays down but once used cannot be used again even as the amount is paid down.
Bridge Loans and Mezzanine loans are typically short term loans of 6 – 18 months. A church may need short term money for church construction costs such as site development, architectural fees, or other short term needs prior to closing on a long term construction or other type of church loan. Getting short term money while waiting for the long term money is a function of Bridge or Mezzanine financing.
Tax Exempt Bond Issues (For buildings such as gymnasium, library, etc. of a non religious purpose), Best Efforts Bond Issues (Bonds sold within the congregation) & General Obligation Bond Issues (Unsecured bonds that will not disturb existing mortgage loan) are also available for church loans.
Church Mortgage Solutions has also identified some very unique features and options that not every ministry lender generally offers ministries. In fact, most ministries have to fight in order to receive these features and options from most local banks while all the lenders in the Church Mortgage Solutions lender network typically offer all of these unique features and options.
Amortization schedules represent the length over which the church loan is paid off or amortized. The longer the amortization period the lower the monthly and annual payments. Most banks limit the amortization on church loans to 20 years and reserve 25 year amortizations for larger loans and more financially secure churches. Church Mortgage Solutions has several church lenders with the lender network that offer 30 year amortizations as a standard church loan feature. This makes it easier for churches to qualify for church loans.
Banks do not generally offer long term fixed rates beyond 10 years. Yet, some financial institutions will offer both 20 and 25 year fixed rates for churches that qualify. With long term fixed rates you don’t have to worry about how church mortgage interest rates might vary in the future. The rate is fixed and will never adjust throughout its 20 – 25 year fixed period.
The most preferred variable rate benchmark is LIBOR (London Interbank Offered Rate). As an international benchmark it is influenced less by US interest rates. If you are looking for an adjustable rate church loan our church lenders offer very attractive LIBOR adjustable rates that are clearly the preferred benchmark. Most commercial lenders use the 5 Year US Treasury Note (CMT) to determine their adjustable interest rate. The US Bond Market is highly volatile and these rates are in constant flux. The least attractive, but oftentimes used US benchmark for determining variable rates is the US Prime rate.
Don’t wait until construction is completed to lock your permanent financing. We represent church lenders that will fix your permanent interest rate at the time construction begins. Many banks try to win church construction loans by offering a low variable rate for the construction loan. They do not fix the permanent financing which begins following construction until that time. In a raising interest rate environment interest rates could be 1% - 2% higher in 12 months when construction is done than today. Waiting to fix the permanent interest rate is very good for banks but very bad for churches. Church Mortgage Solutions will present church lenders that fix your interest rate one time at the beginning of construction saving the church enormous savings in interest costs.
Posted July 16, 2007
By: David Dennison |
