FARM FINANCE 131 



of 1 per cent, is applied toward the payment of the principal, 

 and the bank receives thirty-five one-hundredths of 1 per cent 

 for expenses and profits. If the bond sells below par, either 

 the farmer must pay a commission to the bank or the discount 

 must be met by the bank from its administration fund; on the 

 other hand, if the bonds sell above par, the premium may go 

 to the borrower or to the institution in the form of profit. 

 Generally speaking, the interest rate to the borrower is deter- 

 mined by the market value of the bank's collateral trust bonds, 

 generally referred to as land-mortgage bonds, the rate to the 

 borrower rising as the bond falls below par, and lowering as it 

 advances above par. 



If the rate for amortization is higher than fifty one- 

 hundredths of 1 per cent., the loan will necessarily be extin- 

 guished in a shorter period than 54V2 years. 



A limitation as to time is usually fixed by law as well as 

 to the rate which the bank may charge for administration. 

 In actual operation in Europe the time limitation varies in 

 general from 30 to 60 years, and the charge for administration 

 varies from fifteen one-hundredths of 1 per cent, in a purely 

 mutual association of borrowers to thirty-five one-hundredths 

 of 1 per cent, in joint-stock banks. The French law allows 

 a margin of sixty one-hundredths of 1 per cent., as does the 

 recent Spanish law. This charge is computed on the principal 

 sum remaining unpaid, and in long-time loans it is therefore a 

 constantly decreasing charge to the borrower. 



These rates of payment for interest, amortization, and 

 administration are definitely fixed in the terms of the mort- 

 gage and can not be changed by the bank. The borrower, 

 however, is always given the right to discharge his obligations 

 at any interest period after a fixed time. This period is com- 

 monly designated in Europe as 10 years. This right is a 

 double protection to the borrower. First, it protects the 

 debtor against any demand for payment of his entire debt or 

 an increase in the annual interest charges; second, the pro- 

 vision for repayment at pleasure gives the borrower complete 

 protection against a general fall in interest rates. This will 

 be a very important feature to American debtors, since the 

 tendency in the United States will be toward lower interest 

 rates for farmers. Under such a contract a borrower could 

 safely assume a liability maturing regularly over a long period 



