Managing finances effectively plays a vital role in every church to achieve financial stability. The ministries must learn to perform comprehensive budgeting functions as well as invest in church assets properly. Sometimes it is not enough to rely on donations or pledges.
There are situations when the amount of contributions you will receive is not enough to cover the church’s expenses. It can lead the congregation to consider getting church mortgages to keep them afloat.
However, before engaging in a contract with a bank or credit company, there are a lot of factors that you should consider. You must not agree without researching the pros and cons of mortgaging.
Terms of Interest Rates
You must understand the terms of interest rates for church mortgages that are offered to you by the bank or credit facility. An interest rate is the charge amount in addition to the principal amount that you are borrowing. A lot of financing institutions offer a fixed loan rate. Be careful of such an offering as it can be deceiving. If you are planning for a fixed 5-year term, make sure that you are aware of how high your interest can go while being guaranteed that the loan will remain until you have paid off the balance.
Borrowing Too Much
A common mistake among church mortgages is borrowing too much than they can afford to pay. Most financing industries use ratios when assessing businesses for loans. However, this assessment does not apply to churches as they have different structures. Before applying for financing, make sure that you understand the scope of your project. You have to look into the capacity of the church to make payments according to your projected revenue. Plus, you need to find a credit company that offers ratios that are suitable for churches.
Before you apply for church mortgages, do not be enticed with a low-interest rate for short-term loans. Although the charges can be enticing, there are always hidden charges involved. For example, you agreed to a 5-year loan with the credit facility. However, you were unable to pay off the loan at the end of the term.
Hence, you would have to apply for refinancing. When you go for refinancing, it also increases the time for you to pay off the loan, especially since you will have to start at the beginning of your payment schedule. You will end up paying more for the interest rate but less on the principal amount. Instead, consider longer-term payments as compared to short-term payments that can risk your church of refinancing every few years.
Choosing the Right Lending Company
There are some banking institutions and credit facilities that are not too friendly to the financial well-being of the church. Since they always look for the best incentives to gain, they would end up encouraging the church to borrow more than they can afford.
Therefore, it is not advisable to engage in an agreement without looking for other prospective lending companies. There are lending facilities that provide a healthy amount of loans that is suitable for the church. Take your time when looking for the best church mortgages. There is always a credit company that can work with what you have.
As much as any church ministries avoid borrowing from banks or lending institutions, there are unavoidable cases wherein you have to, such as financing a renovation project. However, there are always risks involved.
Hence, it is advisable to understand what these risks are or your church will end up in a bad debt situation. Discuss with the congregation about the loan so that you can adjust your budget to accommodate the loan payment.