Evening star., 1934-08-30

for security, generally none will be
required, except where building and
loan association or savings bank is
required by the laws of their State
to make loans only against mortgage
security. In this case they will ask
you to give them such security.
May Extend Loans.
The regulations further provide
that loans may be extended up to as
long as three years and in exceptional
cases, in the discretion of the finan-
cial institution, as long as five years.
This does not mean, however, that
every property owner needs the maxi
mum time permitted. 1t is to his ad-
vantage. and to the advantage Of the
financial institution, that the loan
should be paid off as rapidly as posi-
BILE. giving due consideration to the
amount he can comfortably pay each
month.
The cost of this financing service to
you is something I would like to ex-
plain in detail, so that you will un-
derstand it fully. The Federal Hous-
ing Administration has set a maxi
| mum financing charge beyond which
no financial institution can go If the
loan is to be insured. This charge
not only covers interest for the use
of the banks money, but also the
extra cost of handling loans that are
paid off in monthly irstallments
What you are interested in is how
many dollars you will have to pay to
| get a given loan, extending for given
period and repayable in equal month
| ly installments. The maximum charge
| set by the Federal Housing Admins
tration, covering all interest and other
! fees is SIS for each 500 of one year
| installment loan-S9.19 for each $10(
If it is repaid in two years-$l3.03 fol
each S100 If it is repaid in three years
Do not confuse this finance charge
with straight interest on a bank loan
| On a straight interest basis, the bank
will receive under this plan a return
on the money it loans you, at rate
slightly less than 934 per cent pei
| annum. This is a much lower charge
on this type of loan than financial
institutions have been able to grant
heretofore. They are able to loan
money at this low charge now, only
because of the Governments cooper
| alton.
A bank that ordinarily loans money
to its depositors for 60 or 80 days at
say, 6 per cent interest will receive 6
much lower return on these Install
ment loans, because of the extra cost
of handling the large number OF addi'
tional payments.
Example Cited.
Perhaps I can make this clear by
| the following example: If a bank
should make 100 one-year loans of $500
1t would have 500 payments to collect
one for each note, and its average
loan would be $500, whereas if 1t made
! 100 one-year loans of $500 each pay
able in monthly installments, it woult
have 1900 payments to collect anc
the average payment would be little
less than $4,000. If a bank requires
an interest return of 6 per cent where
their average collections are $500, it L
quite obvious that they must have
| considerably greater return in ordel
| to handle average collections of $42 OF
| each.
have tried to make this matter
clear because it has been reported tx
us that some property owners hav'
confused the matter of the annua
| interest return to the bank with thu
maximum financing charge the prop
erty owner must pay. When they have
been told that the maximum return t.
the bank was 9& per cent they hav'
thought that they had to pay $9.75 tc
get q 500 loan for one year, when