by Alan Hill
It was a happy day back in January when we paid off our first mortgage for the Sanctuary. We’d been whittling away at that debt since 1992. That original mortgage with First Union National Bank was renegotiated often over the years and even moved through several banks finally ending up at PNC Bank about 10 years ago. Now we have one more mortgage loan to pay off.
In 2022 during the renovation of the education wing, we discovered that the roof for the west wing and Reimer Hall needed to be replaced. We borrowed $99,000 from the United Church of Christ Cornerstone Fund to pay for that work. Because this was a second mortgage, the Cornerstone Fund added a balloon payment and renegotiation requirement for February 2026, when the first mortgage with PNC Bank would be paid off.
We began negotiating with the Cornerstone Fund in mid-January right after we paid off the first mortgage. Their original offer was to renew the loan for 27 more years at 7% with the rate to be renegotiated every 5 years. We would also have to pay legal fees for title search, etc. and deposit an amount equal to four payments into the fund as an investment.
The explanation from for the investment from Cornerstone was:
“…the payment reserves go hand in hand. Cornerstone Fund brings money in through investments, and we get these investments in two ways: 1) we require all borrowers to be investors or 2) anyone can invest in us at any time. Because we must pay market rates of these investments, we keep our lending terms on a shorter cycle to keep the delta between our lending and investing rates as consistent as we can. We did not require your church to invest payment reserves three years ago because we were in second position and we took an assignment of your rents and leases on the promissory note. This renewal, we will be in first position, and we do not intend to take the assignment of your rents and leases if that works for you. And yes, the payment reserves will be invested for the life of the loan, but all interest will belong to the church to decide what to do with. When the balance of the loan is equal to the balance of the payment reserves, they can be applied to pay off the loan if you wish!”
In my negotiations, I asked the fund to consider either a 10-year or 15-year term and possibly a lower rate. The response was that the rate would have to be 7% but would be reset every 5 years regardless of term. Any term would still require the 4-payment reserve and legal fees.
I calculated the 3 proposed scenarios assuming the 7% rate continues for the life of the loan.
| Loan Amount | 93,326.56 | |||||
| Interest | 7% | |||||
| Term | Payment | Total Payments | Title/Legal | Payment Reserves | Cash to Close | Balance in 5 Years |
| 27 Years | 641.91 | 207,978.84 | 933.27 | 2,567.66 | 3,500.92 | 86,345.87 |
| 15 Years | 838.85 | 150,993.00 | 933.27 | 3,355.38 | 4,288.65 | 72,246.41 |
| 10 Years | 1,083.60 | 130,032.00 | 933.27 | 4,334.40 | 5,267.67 | 54,724.03 |
After reviewing the numbers, the Board of Business recommended to church council that we agree to a 10-year term. Previously, our investments were returning a higher rate than we were paying on our debts. This is not the case now. It makes sense to pay down our debt faster.
This would be a hit to the current year budget as our current monthly payment is only $444.58 because of a lower interest rate and longer term. The total annual amount would still be significantly less than the annual $35,700 budget for mortgage payments in each of the past several years.
The significance is that there is a large savings from paying off the loan over a shorter period. In the comparison above, the cash savings from reducing the term to 10 tears is almost $78,000.
We will also earn a return on our $4,334.40 investment in the Cornerstone Fund that will allow us to pay off the mortgage in nine years and eight months or less.
Church council approved the recommendation of the Board of Business at our meeting on March 19. We are proceeding to complete the paperwork to make this happen.