Avoiding a Mortgage Meltdown

(Originally published as an article within ECCU’s former e-publication, Ministry Banking Today.)

Signing loan documents can be an exciting step toward a new purchase or construction project, with wonderful implications for a growing ministry. But, when ministries bite off more than they can chew, they can quickly become enslaved to hefty mortgage payments. Here are a few practical tips to protect your ministry from a mortgage meltdown.

If you already have a loan…

As people with home mortgages are discovering the dangers of highly volatile loans, ministries are also realizing that they could be vulnerable.

If you’re concerned about your ability to continue making payments on your loan, now is a great time to think about refinancing. This is especially true in the case of an adjustable rate mortgage (ARM), or if you are maxed out in your borrowing capacity. With rates likely to come down over the next year, consider locking into a low-interest fixed mortgage that will offer you more predictability.

Or, if you conclude that an ARM is the better option for your ministry, be sure to budget for the possibility of rising rates that may increase your payments. Better yet, set aside extra reserves for this eventuality. Staying in an ARM requires preparing for the future, regardless of what direction rates move. The best line of defense is to cushion your budget for the unexpected.

If you’re looking for a loan…

First, be sure you can make your payments. Carefully assess your current financial position to determine what you can safely borrow before agreeing to any loan terms.

Next, look for a financial institution that specializes in ministry lending. You want to partner with a lender that will help structure a safe loan that makes sense for your ministry. This includes helping determine if you have adequate cash reserves and income to service your debt without sacrificing ministry needs, ensuring that you will not be in bondage to your loan.

Seek out a lender that you can build a long-term relationship with, and reap benefits beyond the initial transaction, such as banking consultation based on a thorough understanding of your ministry. You want your lender to be looking out for your ministry’s interests and to help you make wise financial decisions. This kind of added value is priceless to your ministry’s overall strength and stability.

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