Evening star., 1939-03-11
Direct-Reduction Type
Of H.0.L.C. Mortgage
Plan Proves Merits
Records of Borrowers
Show Steady Coins
In Home Equities

The advantage of the direct-re-
ductlon form of mortgage loan in
providing rapid route to debt
free home ownership was shown
today by a study of the payment
record of borrowers from the Home
Owners Loan Corp, which ref
nanced more than 100000 900
worth of mortgages for a million
Americans.
These records, it was announced,
show that the average H. o. L. c..
borrower now has an estimated
Equity of $716 more in his home
than he had when the corpora
ton granted its loan. This includes
\ the 5000 saved the typical borrower
by a writing down of his original
loan when the H. O. L. C. re-
financed it, concession which the
H. o. L. c. obtained from the orig
y inal mortgage holders.
In addition, the records reveal
that H. o. L. C. borrowers have
been saved to date an average of
SITS in interest. This represents the
difference in the amount of inter-
average rate at which their loans
were financed privately. and the S
per cent interest rate offered them
by the H. O. L. c.
S1,053 More Equity.
Borrowers who received the aver
age $4,000 loan made by the H. o.
L. C. and who obtained it during
the first month of the corpora
tons operations in June, 1888. now
-have an estimated equity of $1,O53
more in their homes than they had
at the time of refinancing.
Popularization of the long-term,
amortized loan has been one of the
major permanent benefits of the H.
o. l.. c. to American home financ-
ing, officials of the Federal Home
Loan Bank Board, which supervises
the corporation, pointed out.
Until the last few years, the usual
mortgage loan was of the lump
sum" type. That is. the borrower
obtained certain amount of money
payable at the end of given period,
usually three or five years. Often
borrowers merely kept their interest
paid and made no reduction in the
principal. When the note fell due,
it was renewed, the borrower gen.
orally paying a substantial fee for
The privilege. Mortgages hung over
homes for many years, with little
Or no reduction, and borrowers often
oaid thousands of dollars in interest
while approaching little or no nearer
20 debtfree home ownership.
Principal Reduced Monthly.
Under the amortized loan plan,
offered by savings and loan associa-
tions, the borrower pays stipulated
amount monthly. divided between
principal and interest. Progressively
each month, larger share of his
payment goes to principal and less
TO interest-his equity in his home
grows constantly
The H. o. L. C. plan of payment,
officials said, provides classic ex-
ample of the amortized loan: H. o.
L. G. loans are written for Is years
and are repayable at the rate of
S791 per month for each 81 900 bor-
Eowed. applicable on both principal
and interest. On the first payment,
SALT, or SO per cent, of the $7.9l is
for interest and $374. or At per
cent, for principal. But after 60
months only s314, or 40 per cent, of
each payment is for interest, while
s4.77, or so per cent, is applied to
principal. This reduction of interest
payments and increase in principal
payments goes on progressively until
the H. o. l.. C. borrower, on his last
payment, will apply only 3 cents of
the S7.9l to interest, while s788 will
go to complete payments on his
home.
The great majority of new homes,
officials said. now are being A.
nanced on the direct-reduction plan,
which is growing more popular each
month.