Mortgage Information for the Oct 4, 2015
Special Congregational Meeting
from Roger Oliver, financial officer
To help you with your decision for the special Congregational Meeting, here are some facts related to our mortgage choices.
Prior to applying for a refinance with the ELCA Mission Investment Fund, MIF, I contacted our current lender, First Central State Bank, FCSB, to advise them we had a $100,000 Debt Reduction Commitment (with $15,000 already paid to principal) and we were planning to refinance with MIF and to ask if FCSB could offer us a better rate given the debt reduction.
In May, FCSB offered to reduce the rate from 6.20% to 4.95%, and extend the maturity date from August 2017 to May 2020, with no structuring costs, no prepayment penalty, and no obligation to retain their mortgage. Executive Committee accepted that offer and the restructure became effective June 1, 2015; reduced the monthly mortgage obligation from $1,823 to $1,578.
We submitted the application with MIF, and recently received the MIF offer. However, the estimated closing costs ($3,050) were significantly higher than previously indicated. Although I couldnâ€™t divulge the details of the MIF offer, I called FCSB and advised we had an offer from MIF and that FCSB would need to get much closer to 4.00% if FCSB wanted to retain our mortgage. FCSB then offered 4.25%, with no restructuring costs, no prepayment penalty, and no obligation to retain their mortgage. Executive Committee accepted that offer and the restructure became effective Sep 1, 2015; reduced the monthly mortgage obligation from $1578 to $1430.
When I queried the MIF about the significantly higher closing costs, I was told they estimate high in their written offers and that the cost might be $300 to $400 less than the $3,050.
For the September Council meeting, I ran some amortization schedules using web-based illustrations. I compared a $4.25% interest rate and no costs ($1430/month) and a 3.875% interest rate but with $3,050 closing cost included in the mortgage, ($1409/month.)
Even after adjusting for a higher monthly payment to FCSB due to the higher interest rate, we would save about four hundred dollars during the five years with the now 4.25% FCSB rate as long as we get the additional $70,000 of Happy Hearts-Hopeful Future, HHHF, commitments and apply them to the principal, as anticipated. However, if the actual closing costs with the MIF are a few hundred dollars less than the $3,050, there would be little difference between FCSB and MIF, assuming the anticipated $70,000 HHHF dollars are received and applied to debt reduction.
If no more HHHF money is received or applied to the principal, we would save about four hundred dollars at the end of the five years if we chose the MIF refinance.
The FCSB process is complete and does not require any additional action; and, if not extended, will mature May 2020 when the rate will be adjusted to the then market rate. In contrast, the MIF refinance will require finding and submitting documents for closing, the approximately $3,050 for closing costs (assumed to be added to the loan,) and a formal congregational vote authorizing the refinance with MIF. And, if approved, the MIF refinance will mature five years from closing (anticipated maturity, November 2020.)
In summary, without the benefit of the hindsight we will have at the end of the five years, neither is clearly better. But, as one member of the congregation suggested, could there be intangible benefits to refinancing with the MIF? More specifically, would the ELCA be more helpful if MIF held the mortgage? MIF rate is currently 0.375% lower than FCSB; will the MIF rate also be more favorable in five years?
Although not unanimous, the Council recommends refinancing with MIF.