Evening star. [volume] (Washington, D.C.) 1854-1972, 1935-10-19
THOUSANDS SEEK
CASH FOR HOMES
Refinancing Loans Permit
Payments by Small In
staIImentS.

Thousands of families now seek to
buy their homes or to reflnance matur-
ing short-term mortgages through
long, term amortized loans which per-
NIT the borrower to repay his debt by
small monthly installments, combining
interest with steady reduction OF the
loan itself.
In order to save such home owners
unnecessary expense, John II. Fahey'
chairman Of the Federal Home Loan
Bank Board, today issued statement
urging them to consider not. only the
monthly cost, but also the total ultl-
mate payments required on amortlzed
loans of various different maturltles
from 10 to 20 years.
by weighing these two opposing
factors" Fahey asserts. the nome
owner will find it easy to fit the loan
amortization period to his own per-
sonal earnings. Proper adjustment OF
the maturity of long-term loan may
actually save the borrower nearly 40
per cent of the original loan itself"
Text of Statement.
Faheys statement follows:
The long-term amortized loan has
been used by building and loan assocl-
atoms for more than century. Its
rapidly increasing use by savings
banks. insurance companies and other
institutions is one of the healthiest
signs Of the times, in the interest OF
home owners, lenders and the general
public.
In making a long-term loan, the
home owner should fist recognize that
the longer the period of the loan, the
lower is the monthly payment re-
oulred, For example, $1,000 loan al
per cent interest, amortlzed IN III
wears. calls for a monthly installment
of Sll.lO. whereas the monthly pay
ment on a 15-year loan is only So.44
ar s266 a month less than on a H.
year loan.
"A 2O-year amortized loan entails
a monthly payment of only SLY per
$1,000. which is only sl.66 less than
the monthly payment on a lo-yeaT
loan. but 1898 less than on the ~
wear loan. In other words, S5U
monthly installment will repay a
s27OO loan in 10 years, $500 loan
in Is wears, or a $4,100 loan IN ~
wears. if the interest rate is 3 per
cent.
100 Payments Needed.
Bear in mind, however. that the
1o-vear loan for $1,000 calls for 12O
monthly payments of sl1.10, or total
of only 1882 during the entire life
of the loan, including both interest
and full repayment of the $1,000 Dor
rowed. A l5-year loan involves l8C
monthly payments Of S8.44, or total
cost of Sl,519, and a 2O-year loan
REQUIRES 24O monthly payments OF
s717. or a long-run cost of Sl,72o
The latter sum is 1888 per $1,000 OF
loan higher than on the 10-year loan
and about 5000 more than the total
pavments required on the l5-yeaf
loan.
THE recent trend toward longer
term amortized loans, of Is and ~
year maturity, now places nome
ownership within the reach OF tnou-
sands of families who could not al
ford the heavier monthly cost OF loans
of shorter maturity. Nevertheless 1t is
a mistake to put undue emphasis on
the relatively low monthly cost OF
an extremely long-term loan, ana 10
overlook the higher ultimate cost' De-
cause a home owner who can con-
veniently repay his entire DEBT IN a
shorter time may easily save from
$500 to 81 900 or more, on the average
$1,000 loan. .
Most of the 3,400 member institu-
tions of the Home Loan Bank system
are savings and loan associations
which specialize in making long-term
loans. Many of them are making
every effort to save the home owner
from costly second-mortgage financing
by granting f1rst-mortgage loans at
liberal interest rates, up to reason
ably high proportion OF property
value.
These associations offer practical
amortization loan plans which are
compromise between the lowest
monthly cost and the lowest ultimate
cost to the borrower over the life OF
his loan, and are usually made from
u to Is years. Any borrower should
consult his local lending institution
as to the proper loan period in the
light of his own circumstances, other
wise he runs the risk of either too
heavy a monthly payment. or else too
high a total expense in the long run.
IN financing or refinancing his home
with an amortized loan"