Biweekly mortgages can be alternative to other 'quick-pay' loans
Choosing a biweekly mortgage that requires one-half of a typical monthly repayment every two weeks can save borrower lots of money, but not as much as a "straight" 15-year schedule would provide.
Q. I was interested in the recent column you wrote about the huge amount of finance charges that a borrower can get if they take out a 15-year mortgage instead of one with a 30-year payback plan. But what about the "biweekly" loans that I have heard about? Can they save just as much money?
A. Borrowing through a biweekly repayment plan is a good way to save on future interest charges and pay off a mortgage early, although it's not as effective as choosing a 15-year repayment schedule.
Under a biweekly plan, you would pay about one-half the amount that a monthly 30-year repayment schedule would require every two weeks instead of writing a single check for twice that amount every 30 days. Because there are 52 weeks in a year, selecting a biweekly program means that you would make the equivalent of 13 monthly payments annually instead of the usual 12.
The savings can quickly add up. To illustrate, each principal and interest payment on a biweekly program for a $150,000 mortgage at today's rate of about 3.75 percent would be about $347. Monthly payments on a 30-year schedule for the same amount and interest rate would be double, at $695.
You would be charged $100,842 in finance charges over 30 years by selecting a monthly plan. But by making the equivalent of 13 monthly payments each year instead of 12, the biweekly plan would allow you to pay the mortgage off in 26 years and two months while trimming your overall interest charges to $83,731.
In short, the biweekly plan would allow you to own your home "free and clear" two years, 10 months sooner and save you $15,111 in interest charges.
Savings provided by a 15-year loan with once-a-month payments would be much greater — a staggering $63,625 beneath the cost of its 30-year counterpart — but you would have to earn much more to qualify for the 15-year loan and also be able to comfortably afford its higher ($1,054) monthly tab.
Bottom line: Choosing a biweekly repayment schedule can be a good compromise for those who want to save some money and retire their mortgage debt a few years earlier than a 30-year plan would allow, but do not want to lock themselves into the sharply higher monthly payments that a 15-year mortgage would require.
Q. We made an offer of $191,000 for a house, but the sellers said that our offer was too low. They made a written counteroffer for $208,000, which we think is much higher than the property is worth. What should we do?
A. First, relax. You are not obligated to buy the home for any price now, because the seller's written counteroffer legally voided the deal that you originally proposed.
You can now pay the $208,000 that the seller is demanding, negotiate for a lesser price or simply cancel your original $191,000 proposal without having to pay a penalty.
Any "good faith" deposit that you may have made as part of your first offer also must be returned to you.
Q. You recently wrote that every buyer should make their proposed purchase offer contingent on the home first passing a report by a professional home inspector. I can see why it's important to have a pro check out an older property for problems, but is it really necessary to hire one if I want to buy a new house in a new housing tract?
A. Yes. Savvy buyers always hire an independent inspector to look at a property before they agree to purchase it, even if the house or condo is in a sparkling new tract.
Developers in all 50 states cannot put homes in a new subdivision up for sale until each home has received a passing grade from a local government inspector. But in most communities, those inspectors only look for violations of local building codes; they aren't authorized to render an opinion on the quality of the home's workmanship or to check whether the builder has kept all the promises that were made to a buyer in a sales contract or fancy sales brochures.
Such judgments, though, often can be rendered by a private-sector inspector. The fee usually ranges between $300 and $500, but that pales when compared with the thousands of dollars a buyer might have to spend if the new home has problems that a government-paid inspector does not have to note.
REAL ESTATE TRIVIA: The tallest building in the world is the Burj Khalifa residential, office, hotel and retail skyscraper in Dubai, United Arab Emirates. Opened in 2010, it has 160 stories and stretches 2,723 feet into the air. That's more than one-half of a mile, and more than twice the height of the Empire State Building.
• For the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers, P.O. Box 4405, Culver City, CA 90231-4405.
© 2012, Cowles Syndicate Inc.
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