One of the nation’s biggest lenders has begun offering a biweekly loan program, fueling speculation that more financial institutions may begin offering the hard-to-find, money-saving mortgages.
World Savings & Loan Assn.--the Oakland-based institution that’s currently the fifth biggest lender in California and one of the nation’s 20 largest--just launched a massive advertising campaign to promote its new “Equity-Builder” biweekly loan program.
Like most lenders that make biweekly mortgages, World requires that borrowers under its new program set up a checking or savings account with it. The account is automatically debited for the mortgage payment every other week.
Since payments are made biweekly, the borrower winds up making 26 payments over the course of a year--the equivalent of 13 monthly payments instead of the usual 12.
That extra payment each year can translate into big savings for borrowers, primarily because the principal amount of the loan is paid off much sooner than conventional pay-back schedules allow.
Under World’s biweekly program, the typical 30-year loan would be paid off in about 20 years.
The savings you would enjoy are impossible to precisely calculate because World will only make adjustable-rate biweekly loans. You don’t know what your monthly payment will be 5, 10 or 15 years from now.
However, if you took out a $100,000 loan at a rate that averages 10 1/2%, the shorter pay-back schedule would save you more than $85,000 in interest payments.
“It’s too soon to tell what kind of acceptance this loan will have among consumers,” said James Judd, chief executive officer of World. “We think it will appeal to a fairly good number of borrowers.”
Although the benefits of biweekly pay-back schedules have been touted by many financial-planning experts for years, most lenders have been wary of offering the programs.
Some say the cost of installing a computer system that can process payments every other week instead of once a month is too time-consuming and expensive.
Others say that the thought of making a mortgage payment twice a month is just too off-beat to appeal to many American borrowers.
But World Savings disagrees, and a few analysts said last week that the S&L;'s new biweekly program could persuade other lenders to start offering the loans.
“World Savings is a big player in the lending industry,” said James Christian, an executive with the U.S. League of Savings Institutions.
“With its market share and its marketing clout, a lot of other lenders might follow World’s lead and start offering biweeklies. That would make the loans a whole lot easier to get than they are now.”
Still, a few of the lenders that already offer biweekly mortgages aren’t so sure that World’s new program will be a success.
“We started a biweekly loan program a year or two ago, and kicked it off with a big advertising campaign,” said Robert Garman, senior vice president of Riverside-based lending giant Directors Mortgage Loan Corp.
“To be honest, the demand we expected just never materialized,” Garman said. “We still offer biweeklies, but we aren’t making many of them.”
One reason for the dearth of borrower requests, Garman said, could be that borrowers can essentially accomplish the same savings and fast equity buildup that a biweekly program provides simply by making one extra mortgage payment a year.
“You can get the same results as you’d get with a biweekly mortgage just by making that extra payment once a year,” Garman said. “If you’ve got the discipline to do that, great. Otherwise, you might want to sign up for a biweekly program--or take out a 15-year mortgage--in order to cut down the length of your loan and save all that interest.”
Letters and questions may be sent to Myers at the Real Estate section, Los Angeles Times, Times Mirror Square, Los Angeles 90053. Questions cannot be answered individually. LENDERS OFFERING BIWEEKLY LOAN More than 100 lenders across the U.S. now offer biweekly mortgages. Here’s a partial list of the banks and S&Ls; that offer such loans in the West:
Great American First Savings Bank
Mortgage Loans America
First Security Bank of Idaho
CU Mortgage Corp.
Visalia Community Bank
Southern California Savings & Loan
A G Financial Services Inc.
The Bettes Co.
Pacific Central Mortgage
Beverly Hills Securities Co.
First Franklin Financial Corp.
Key Bank of Wyoming-Cheyene
Shearson Lehman Hutton Mortgage
Cal-Bay Mortgage Group
Hamilton Savings Bank
Atlas Mortgage Ltd.
Cache Mortgage Corp.
Capitol Commerce Mortgage Co.
Home Savings of America
Midwest Pacific Financial Inc.
Philadelphia Freedom Corp.
West One Financial Services Inc.
SOURCE: Federal National Mortgage Assn.