me only five per cent. This will reduce my semi-annual dues to $30 a year, yet will be paying off the debt just as fast as before! Or if I keep on paying $35 in dues, the $5 additional thus saved every six months wipes out my debt so much the faster. Likewise, should I be able to pay $50 semiannually, my debt would be paid off in twenty years, as shown by Table B in the Appendix. And that time will be shortened correspondingly if the three per cent charged me semiannually for interest and administration is reduced to two or two and one-half per cent, also if I apply my dividends upon principal. Too Good to Be True? The foregoing seems incredible to the borrower, but it is true. If all goes well, the saving may be even greater than in the above examples. Little payments on principal, added to little savings. of interest, plus little profits, run into almost fabulous totals in a few years. This apparent miracle accounts for the marvelously large accretions piled up by insurance companies and savings banks. Farmers now have a chance to employ the same principles so as to own their own farms and homes free and clear of incumbrance by paying off their mortgage "almost without feeling it." What It Means. By the old method so long in vogue, the cost of mortgage money to American farmers, including commissions and renewal charges, has averaged in recent years about eight and one-half per cent. This means that the average farmer has paid what is equal to $85 yearly for the use of $1,000. In thirty-three years these annual charges of $85 amount to $2805. That is for the simple interest only. But compound interest must be reckoned with also. If the $85 paid by the borrower each year to the lender is so invested by the lender as to earn five per cent annually, and this income is compounded from year to year at the same rate, such compound interest will aggregate $3,595.36 for the thirty-two years for which the lender enjoys the compound interest. By the old method, this compound interest accrues to the lender, and and is lost to the borrower. Add it to the $2805 which the borrower paid in simple interest, and we get $6,400.36 (see Table C, Appendix) as the total cost and loss to the borrower of $1000 for the thirty-three years by the old way, and he still owes the original $1000 of principal. By the new method, computing simple interest at five per cent, allowing one per cent for administrative expenses and profits, and disregarding the borrowers' share of the profits, his total payments are only $35 every six months, or $70 a year. In this case, therefore, the farmer pays in a total of $70 each year, or $2310 in thirty-three years, but by the end of that time his debt is paid off in full, besides all interest and expense thereon meanwhile! (See table A, Appendix.) Old vs New. Therefore to pay interest and other charges upon a mortgage of $1000, and to have the principal of the debt paid off in full at the end of thirty-three years, in the two examples given above- Costs by the old method $7,400.36 Saving by new system.. $5,090.36 Enormous Advantage to Borrowers. Total payments yearly less than by the old method not only meet interest, but by the new system gradually discharge the principal also. In these examples the actual saving by the new over the old way is some $5000 on each $1000 borrowed for thirty-three years at an average cost of $85 annually. The shorter the time for the loan, the less is the apparent saving, but the sooner the debt is paid. Thereafter all the interest accrues to the farmer, who now owns his place free and clear, and forever after enjoys the use of the funds he had been paying as semiannual dues. As a matter of fact, conservative allowance for the borrower's share of the new system's profits would make the comparison still more favorable to the amortization principle. This reduction of debt by increasing payments upon principal, in effect enables the compound interest to accrue in borrower's favor, whereas heretofore compound interest has accrued to lenders. Yet the investor in farm loan bonds nets a fair return free of tax, and may realize upon his investment at almost any time or at maturity without loss. The system is as mutually beneficial as it is almost magical in the benefits it confers upon borrowers. A CHAPTER ELEVEN WHY BORROW BY THIS SYSTEM FEW of the many reasons why a thrifty farmer may wish to borrow under the federal farm loan plan, in preference to other methods now or heretofore in vogue, may be briefly summed up as follows: 1. Long Term. Your loan must run for not less than five years nor for longer than 40 years. 2. Easy Payments. Upon such long term loan, your semi-annual dues take care of the constantly decreasing amount required for interest and expenses, leaving a constantly increasing balance of your semi-annual payments to apply upon the principal, and thus constantly reduce your debt faster and faster until it is all paid off, your note canceled, mortgage discharged, and you then own your place free and clear. 3. Larger Payments. You have the privilege of reducing your loan still more rapidly by larger payments upon principal at any interest date. |