Evening star., 1935-05-04
.L0NG-TERM LOAN
BENEFITS CITED
Home Owner Saves in In
terest Payments, Board
Says.

The surprising sum of money which
the home owner saves when he fl
nances his mortgage as a long-term
smortized loan rather than a short
term loan is pointed out today in a
statement from the Federal Home
Loan Bank Board, which asserts that
the home owner may actually save
enough in interest charges on r.
wear amortized loan to pay off nearly
q third of the entire principal. The
statement follows:
THE Federal Home Loan Bank Board
urges the half-million urban home
owners whose short-term mortgages
fall due this year to ref1nance such
loans by making new long-term di-
rect reduction loans, through build
ing and loan association, life insur-
ance company, savings bank or other
long term thrift institution which Of
fers the amortiZed type of loan. It's
advantages include greater conven-
fence and safety for the borrower and
the opportunity to save a substantial
sum of money. as the following IN
stance illustrates:
THE home owner who borrows
$1,000 on a short-term renewable
mortgage at 6 per cent interest pays
out $50 each year in interest, or $720
during a period of IL years. In the
meantime, he must renew his loan at
three to five year intervals, mourning
renewal fees and other expenses on
each occasion. At the end OF IL
years he still owes the $1,000.
IF he made his original $1,000
loan on a 12-year amortized basis at
the same rate of interest, he would
simply make cash payment of about
$40 each month, and the 81 900 loan
would be entirely paid off at the end
of IL years and months, without a
single payment of more than $40.
During that time he would pay IN
interest only 1891, as against $685. re-
uuired in interest on the renewable
short-term loan for the same period
In other words, the amortiZed loan
saves him S304 in interest charges, or
nearly a third of the entire $1,000
principal, and he incurs no renewal
expense during the time his loan is
steadily being reduced to zero by these
small monthly payments.
"On a short-term renewable loan
the borrower usually pays interest
year in and year out, on the full
amount of the loan, without ever
getting out of debt. On the amortized
loan each $40 monthly payment in
cludes an installment on the principle
as well as interest on the unpaid
balance. During the first year $685.
out of his $120 in payments is needed
for interest and SCI SO is used to re-
duce the principal. Thus, by the
tenth year this process has so greatly
reduced the principal that interest
payments on the unpaid balance re.
quire only s14.41 out of the $12(
paid in that year, leaving $105.5e
for still further reductions of the
principal.
ANY home owner whose short
term mortgage comes due this year
or who wishes to borrow in order
to build or modernize home, should
consult local institution which
makes a practice of amortized loans
with a view to saving money by re-
financing his maturing debt on a
long-term basis. More than 5000
such institutions are members of the
Home Loan Bank System. Many OF
them now have ample resources OF
their own for loans to home owners
on reasonable terms. In addition
they have the almost unlimited credit
reserves Of the bank system, enabling
them to borrow at low interest rates
In order to make adequate credit
available for home loans in their
communities.