Managing church loan mortgages can be a challenge for church business administrators. If your church is found with loans that are difficult to manage, we’ve listed below four strategies to help reduce your debt in a timely manner.
1. Find a lower interest rate
Bank interest rates are usually based on indexes such as the Wall Street Journal Prime Rate and in some circumstances the London Interbank Offered Rate (“LIBOR”). Typically, bank loan rates adjust daily, monthly, every three years or every five years.
Depending on the lending source, interest rate options may vary widely. It is wise to conduct thorough research before making a decision and consider both banks and ministry-based loan funding sources for lower rate options.
2. Extend the maturity date
Most of the time, banks have five-year balloons on their loans. A balloon simply means that the balance of the loan will be due at the end of five years. By seeking a longer maturity, your church can avoid being forced to pay all remaining debt at the end of five years.
3. Restructure the amortization schedule
The amortization schedule determines the monthly payment of your loan. For example, if you had a $100,000 loan with a five-year balloon and a 25-year amortization period, it would take your church at least 25 years to pay off your debt. By reducing the amortization period, your church can begin to reduce its debt.
4. Create a building fund for additional principal payments
One way to help reduce your church debt is to allocate some funds from the church’s budget to a building fund. The building fund will be used to reduce debt at an accelerated pace. In additional to the budget reallocation, sometimes churches will use pledge drives to help generate additional funds for the building fund. The most important thing your church can do is to at least have a strategy for debt reduction.
Thank you for taking time to read this blog. Should your church seek additional information about the refinancing of your current bank debt, please contact BCLC Church Lending.