Great American First Savings Bank, the country's ninth largest savings and loan association, with assets of $13.4 billion, last week became the first major California lender to offer biweekly mortgages.
The San Diego-based thrift institution has 190 offices in California, as well as in Arizona and Colorado, according to Rick McGill, first vice president and manager of single-family residential origination, mortgage banking and secondary marketing for Great American.
The biweekly loans are being offered for both new financing and the refinancing of existing mortgages, McGill said.
Based on Half Monthly Payment
Unlike conventional mortgages, biweekly mortgage payments are made every other week, instead of monthly, and are based on half the monthly payment. By making 26 biweekly payments, McGill said, borrowers are actually making the equivalent of 13 monthly payments a year.
In an example cited by McGill, a conventional 30-year, $100,000 loan at 10% would require monthly payments of $878, and total interest expense over 30 years would be $215,926. Under the biweekly arrangement, $439 (half the monthly payment), would be paid every other week.
The mortgage would be paid off in fewer than 21 years and total interest paid would total $139,109--a savings of $76,817 over the 30-year mortgage.
"Typically," he added, "by the time your biweekly mortgage is paid off, a conventional 30-year loan will still have 60% of the principal left unpaid."
The first California break in the biweekly mortgage--developed by Canadian credit unions about four years ago--came in April when Mortgage Loans America, a large wholesale mortgage banking firm based in Campbell, Calif., began offering such loans through a statewide network of about 1,000 retail mortgage banking offices.
But, until Great American opened the biweekly door last week, the state's conventional mortgage lenders had backed away from them, citing lack of a viable second market for such mortgages.
"Lenders," Great American's McGill said, "commonly package loans to sell in the secondary market, but, presently, the two largest traders in the secondary market, the Federal National Mortgage Assn. (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac) do not purchase biweeklies, though many insiders believe they will soon do so."
Initially, at least, he added, "we'll hold these loans ourselves because we see them as a product that should generate other business for us--checking and savings accounts, credit card accounts, and so forth. And, of course, there is a second market for them, but it's in the private sector--in the investment market as mortgage-backed securities."
Great American, McGill added, is currently prepared to write fixed-rate biweekly mortgages at a rate that is somewhere between the S&Ls 15- and 30-year fixed rate. "And that, right now, is about 10%. And there is a two point origination fee for both new financing, and refinancing." (One point is 1% of the amount being borrowed.)
Application forms for the biweekly loans have been distributed to Great American's offices, he said, "and, so far, the telephone interest in them has been quite strong."
"We're confident this will be a very popular mortgage," McGill said. "But it's still a new product, so it's important that we educate not only borrowers but real estate brokers as well on the values of this innovative program."
Great American has also established a toll-free telephone line for directing interested parties to the S&L's nearest loan center: 1-800-423-BANK.