Church Mortgage: What You Need To Know

During the past few years, faith based organizations have experienced an increased availability of low-interest-rate church mortgage funding from a much broader range of lending institutions. Among the more visible new sources for church mortgages are local, regional and national banks that are looking for new commercial opportunities with churches and their congregations. These financial institutions are keen to explore new lending relationships in the face of decreased traditional commercial borrowers.

The move towards supporting church mortgages comes in the wake of an interesting situation facing many banks and lending institutions today. On the one hand, banks have even more capital available to them at low costs, but with the current slow pace of the economy, fewer businesses are able or willing to secure loans. This situation has caused many banks to more aggressively explore the church mortgage market, which is of course a great boon to many congregations.

Of course with the inevitable improvement of the economy, businesses have begun to enjoy a corresponding growth and have thus begun to increase their borrowing as well. This may result in a situation wherein banks will begin to redirect their funds away from church mortgages and back to their former commercial customer base. An influencing factor in this regard is the fact that many banks typically prefer loans that are based on lines-of-credit instead of commercial loans such as a church mortgage, since lines of credit allow them to continually adjust interest rates, instead of implementing ?xed interest rates.

In the process of securing a church mortgage, faith based organizations have a number of key questions to address, one of which is the issue of whether or not they would consider themselves a "budget-based" church. As with any other funding project, the leadership of the church will have to determine future budget objectives and limitations, and how they will deal with costs effectively when interest rates on a church mortgage will change, as they inevitably will. Decisions such as whether they want to pass on the responsibility of re-negotiating or re?nancing their church mortgage several years down the line, or how important it is to determine what each mortgage payment is going to be for the next foreseeable future, are some very real concerns that must be addressed adequately.

The ability of a church to provide answers to these questions will have a great deal to do with deciding what type of lending institution they will want to secure a church mortgage from. It will also help a church to decide on whether or not to use a construction loan that will entail a conversion into a permanent loan upon completion of the project, at interest rates that are in place at that time.

Of course, there are a few alternatives to short-term and variable-term bank loans available to specialty denominational lenders and for many independent churches, and these can be obtained from specialty investment banking ?rms. These types of investment banking institutions typically offer bond underwriting services for churches that use capital markets instead of depository markets for mortgage funds.

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