The biweekly mortgage, a popular method on the East Coast for paying off loans quicker and building up equity faster, is gaining a toehold in Orange County, as two local mortgage companies begin to promote the payment programs.
National Financial Services in Irvine and Newport Pacific Funding in Newport Beach say their mortgage payment programs--essentially forced savings accounts--are getting a good reception from homeowners who don't necessarily want to refinance their loans.
Fees typically range from $500 to $1,000 to set up the payment program; monthly service fees run $2.50 to $4. Essentially, a homeowner's monthly mortgage payment is cut in half for each payment, and an extra month's payment is made each year.
By doing that, a homeowner with a $100,000 loan at a 10% interest rate can save nearly $75,000 over the life of the loan and cut the 30-year payment period to 21 years and one month, according to Melvin A. Creighton, National Financial's president.
National Financial handles only customers with existing mortgages. The company plans to take its program national within three months, Creighton said.
Newport Pacific can finance new biweekly loans or make payments on existing loans. Homeowners who have already obtained the lowest interest rates they could get are now looking for other ways to cut their mortgage costs, said Greg Cavenee, a loan officer.
So the biweekly mortgage should become popular, he said.
Banks and savings institutions are looking into biweekly mortgages, said Kenneth Slezak of Vista Marketing in Huntington Beach. But, he said, changing computer programming to handle the extra billing and collecting is a big job, and no strong secondary market exists to buy the loans from the many institutions that don't want to keep those loans in their portfolios.
And a homeowner with a lot of discipline can get much the same result--and save service and handling charges--simply by adding an extra amount to each regular monthly mortgage payment. Increasing a $1,000-a-month payment to $1,100, for instance, can result in a reduction similar to that achieved with a biweekly mortgage.