association of the province of Saxony the amortization is 34 per cent, per year. On a loan made at 4 per cent, is added the 34 per cent, amortization and 14 per cent, to cover the operating expenses of the association, making a total of 5 per cent., and by paying this amount annually for between forty to forty-five years the loan will be paid off. The farmer in the meantime also has the privilege of paying it all or in part at any time. After the loan has been made the rate of interest can not be raised or the loan called in, so if the farmer has secured his loan at a low rate of interest he can carry it until it has been amortized by his annual payments. The Saxon farmers who in the nineties borrowed at 3 per cent, and got par for their bonds are relishing this feature now that the rate of interest has advanced to 4 per cent.
However, many of the better farmers make no attempt to pay off their loans any faster than is required through the annual amortization payment, finding that they can get their credit cheaper in this way than any other and can make more interest on the money used in their business than they have to pay for it. The association also has the provision that when 10 per cent, of the original loan has been paid an additional loan can be made and in this way a farmer can continue to carry indefinitely practically the same amount of loan on his property if he finds it advantageous to do so. The average length of time loans run in Saxony is about twenty-five years.
By this method the farmer gets all the advantages of the money market if money is tight—the rate of interest goes up and the price of the Pfandbriefen go down when money is abundant and interest rates low the price of Pfandbriefen go up. The farmer through his bank watches the money market and takes advantage of the low points in interest rates to secure his loan, and once made he is safe from having his loan called in or his interest rate raised.
Decentralizing the Business
A practical point in the operation of such a business is to make it as convenient as possible for the farmer to do business with the land mortgage association. The province of Saxony is a territory nearly 100 miles square and the association is located in Halle, a relatively large city. For all of the farmers to come to the central association to negotiate their loans would be impracticable and would diminish the business very much. This problem has been solved by dividing the province into districts 10 to 15 miles square and in each district is a local officer of the association elected by the members in their annual meeting. This officer assists the members in getting their loans, sends in their applications, gives information concerning the association and looks after the business in his district. When property is appraised for loans, he is chairman of the committee making the appraisement.
