Considering Refinance in 2021
Church Family,
As we mentioned in the member meeting, we wanted to provide the details we discussed regarding the refinance of our building mortgage. Please take a look if you’d like to think more about this, and let us know if you have any thoughts. First, we’ve listed a few scenarios that we’ve thought through, in order of the elders’ current preference, greatest to least. Then we’ve listed some pros and cons as we see them. Lastly, we’ve briefly mentioned a couple questions we’ve received and how we are thinking through them. The short summary of the direction we are leaning is that we strongly desire to lower our monthly mortgage payment so we can put more funds into ministry, whether that be increasing missions/charitable giving, growing in-house ministries, or hiring more Staff, and we are willing to make the trade-offs of higher total interest paid over the life of the loan and prolonging the duration of the loan. We will work to clarify where these additional funds will go in the 2021 Budget.
Facts
The loan amount is about $1.18M
Our debt to equity ratio is a little less than 70% (lenders typically will go up to 80%)
Our debt to equity ratio is based on the original appraisal, which is now four years old and doesn't include the finishing of the front office space and some Grace Kids classrooms: we estimate this ratio would be even more favorable (less than 65%) with an updated appraisal
Pros
Lower payment (about $1k less) enables more kingdom investment
Lower payment lowers risk in the event of more financial churn
Lower payment brings us in line with recognized best practices for churches (payment is less than 30% of our budget, “fixed” costs are lower than 85% of our budget which enables more than 15% to be spent on internal and external ministries)
Going with the SBTF as our lender means there is no guarantor required, which releases our current guarantor from a huge personal liability
Cons
Fee - $11,800 (industry standard)
More total interest
Prolongs debt
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Frequently Asked Questions
Why do we have such a different philosophy when it comes to church debt vs personal debt? Shouldn’t the church model an aversion to debt just like we would teach for personal finances?
First, we affirm that an aversion to personal debt is a healthy and wise posture (Proverbs 22:7). We as elders love the idea of paying off debt and the freedom it brings, and we would all love the opportunity to disciple anyone who is interested in this important area of life. This does not mean that having personal debt is necessarily sinful, nor does it mean that debt reduction is always the number one financial goal for an individual or family. For example, a working husband and wife may decide to refinance a mortgage, increasing total interest paid and extending the life of the loan, in order for one spouse to stop working and stay home with their children.
Second, while the church is similar to individuals and families in many ways, it is not identical (1 Timothy 5:8). One difference is that while every believer is in a permanent covenant with Jesus, we are not called to commit to a permanent covenant with any particular local church. The local church is important, but there are several good reasons to leave a specific church for another (moving cities, theological divergence, etc.). This is different from a family, where reasons for “leaving” are minimal (like one), if any. In this sense, freedom from debt, which is generally a long-term goal, may be pursued with great care and a long-term view in a family, while it may be reprioritized in a church. The drive is likely to be more proportional to the longevity of commitment.
Third, the Bible doesn’t give us a highly detailed set of rules for dealing with debt, so we have freedom to use wisdom and make the choices that seem best. And while freedom can be a blessing, this almost inevitably means that we will not all agree all the time about all the aspects of these decisions. And that’s ok! Our unity is in Jesus and the gospel, even through disagreements in various life decisions.
Is it really wise to pay so much more in interest? Are we failing to steward our resources well and failing to love those who will carry this burden in the future?
In a similar train of thought to part two of the answer to the first question, we feel that this is simply a trade-off, and it can be looked at from different angles. It certainly does seem plausible that spending more in total interest is less responsible, and that pushing debt out longer to future members of Grace is less loving. But, another perspective is that paying more towards the debt now would cause us to invest less in those around us, whether fellow believers in our church or in the lost we’re trying to reach, and therefore less loving. The outside counsel we’ve received said it’s actually better stewardship is some ways to adjust our payment down, and they share our passion to love more people now instead of later.
Again, this will likely look very different for an individual or a family. It certainly has for ours. With a church, the tradeoffs are just not quite as one-sided.
Isn’t the fee a little high?
The fee is no higher than most banks would give us, and the two banks we’ve talked to can’t even give us as good of terms as the SBTF. Essentially it’s like any other economic transaction: we’re saying the value this refi brings us is worth more to us than the fee. And not just in dollars: we see great value from a kingdom vantage point.
Can we use the refi not as an opportunity to minimize the payment but to save on interest, either through keeping our monthly payment the same or even through accelerating our payoff timeline instead of prolonging it?
The answer to this question is essentially the same as the first. The nuts and bolts of additional principle, saving on interest, shortening the loan, etc. essentially come down to the same question: should we pay more now or later? Again, for our church (and usually not for individuals), we lean towards paying less now so we can invest more in ministry. One additional noteworthy fact: having a lower payment gives us more flexibility. With a higher payment, we have no option to pay less if things got tough, but with a lower payment, we can always pay more. There is no prepayment penalty, so we could decide to pay additional principle at any time, with the ability to drop back down if finances got tight.
By trying to lower our monthly payment, are we in any way failing to trust that God will provide?
First, when we talk about God’s provision, it’s important to identify what God has promised us, because we don’t just trust him for anything we want; we trust his promises (2 Corinthians 1:20). In our personal lives, God has promised to keep us in the faith until we see him in paradise (Philippians 1:6). However, he has not promised us certain specific things along the way, such as freedom from a particular sin in a specific amount of time. Similarly, while God has promised that the gates of hell will not overcome his church (Matthew 16:18), he has not promised that any particular local church will exist for any specific length of time (Revelation 2:5). It seems likely to us that Grace Church in Waco, TX will be around a little while longer, but we hold this loosely (James 4:15), and we thank God for every week he brings us back to worship him in our specific place with this specific local church family!
Second, we do think it’s reasonable to trust that God will provide for Grace Waco as long as he has planned for us to continue to make his name known as an organization. However, we can’t know what his provision will look like. Could he bring such an increase in faithful giving to the church that a refinance would be obsolete? Absolutely. But, could he have planned for us to enter into another trial that will cause financial uncertainty? Certainly. And maybe having a lower payment at that time is what enables us to “survive”; in other words, maybe that’s how he’ll provide.
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In summary, we always want to trust that God will provide, but we want to trust with boldness where he has promised clearly, and we want to trust with a loose grip where he could have any number of things planned for us. In the meantime, we want to move forward with love and wisdom, and trust that he is always working his perfect plan, even through our imperfect thoughts, decisions, and actions.
Thank you all for patiently bearing with us as we try to lead in the best direction, even if we don’t all fully agree (Hebrews 13:17)! Please send us any thoughts you have, both positive and constructive, and we will consider everything before us as we make the final decision.
Rich because He became poor (2 Corinthians 8:9),
Pastor Bracken