Frequently Asked Questions

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About Bonds

 

  • Q: What are church bonds?

    A: Certificates of indebtedness sold by churches to obtain funds for capital needs (i.e., purchase property, build or renovate facilities, refinance debt). The church is the borrower and the bond purchasers (many times the church members) are the lenders.

  • Q: Are church bonds insured or guaranteed?

    A: Neither; the bonds are mortgage bonds and are secured by the church property.

  • Q: How does the church repay funds borrowed through bonds?

    A: The church designates a portion of its income for deposit into a special bond repayment account, held by an independent corporate trustee, similar to a conventional loan payment. Such funds provide for payment of interest when due, and principal upon maturity.

  • Q: How is the interest paid?

    A: With simple interest bonds the investor receives interest payments every 3 months. With compound interest bonds interest is compounded every 6 months and the investor receives principal plus accrued interest at maturity.

  • Q: Do church bond interest rates fluctuate with market conditions?

    A: No. They are fixed rate investments.

  • Q: Are fees or loads associated with buying?

    A: No. The investor never pays fees, loads or commissions.

  • Q: When do bonds mature?

    A: A portion of the bonds normally mature every 6 months during the life of the bond issue. A schedule of maturities provides specific maturity dates. The church has the right to redeem any bond prior to its scheduled maturity.

  • Q: Is the interest earned taxable?

    A: Yes, as ordinary income on an annual basis. However, IRAs may be used to defer taxes. Other tax planning techniques may enable investors to significantly reduce or, in some cases, avoid these taxes. Investors should consult their tax advisor regarding their individual situation.

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Dallas, Texas 75248

 

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