Although for generations the building and loan associations of the country have been lending funds for home buying and home building on a scientific and widely known monthly repayment basis, there is considerable misinformation current as to the proportion of the monthly payment applied to interest. It is often thought that the interest portion is much larger than it actually is, and, in fact, the idea is lodged in many minds that "half the monthly payment is credited to interest and half to principal."

This impression may have been originally obtained as a result of the experience of borrowers who have dealt with organizations which have misused the building and loan name and engaged in irregular practices. Or, it may have resulted from a careless examination of published building and loan tables like Table III, showing the retirement of a $1,000 six per cent loan through monthly payments of $10 each over a period of about 139 months.

A glance at the "Payments" column and the "Interest" column, which show entries of $120 in one and $60 in the other, might easily mislead the layman into thinking that the interest is one-half the payment. Of course, those familiar with building and loan financing understand that the dividends must be subtracted from the interest - which is actually gross interest - in order to find the net interest charge, and that the "Loan Out-standing" column must be referred to in accounting for the disposition of the $120 yearly payments. Thus, at the end of the first year the situation is shown as follows:

Table III. $1,000 Loan At 6 Per Cent Payable $10 Monthly

Month

Payments

Loan Outstanding

Interest

Dividends

12.......

$120

$938.24

$60.00

$ 1.6615

24.......

120

872.92

60.00

5.4160

36.......

120

803.52

60.00

9.4005

48.......

120

729.90

60.00

13.6265

60.......

120

651.78

60.00

18.1110

72.......

120

568.92

60.00

22.8675

84.......

120

481.00

60.00

27.9140

96.......

120

387.73

60.00

33.2685

I08.......

120

288.79

60.00

38.9480

I20.......

I20

183.81

60.00

44.9740

132.......

I20

72.45

60.00

51.3670

139.......

70

4.32

35.00

33.13

140.......

10

-5.64

5.00

4 .95

$I,400-$5.64

$700.00

$305.6390

Gross interest...................

.$60.00

Less dividends....................

. 1.66

Net interest.................

.$58.34

Original principal.......

$1,000.00

Less loan outstanding.. .

938.34

Applied to principal.

.$ 61.66

Net Interest........................

.$ 58.34

On principal.............................

. 61.66

Total payments.......

.$120.00