There are certain points peculiar to this form of mortgage which are used as arguments for and against its adoption. Arguments in favor of this form are as follows:
1. The security is in a definite form, and as each payment is made, its value increases in proportion to the amount of the debt.
2. It enables the purchaser to buy on terms as easy as under a contract, and at the same time gives the vendor a security which he can easily hypothecate (or use as collateral for temporary loans, or for more permanent loans, such as debentures, etc.) to greater advantage than a contract.
3. Once the terms are agreed upon, there is no further calculation of interest to be made.
4. Under the laws of most states, the mortgage notes can be made to bear interest after maturity without rendering the vendor guilty of usury.
The arguments usually urged against this form of mortgage are the following:
1. The vendor receives his principal in instalments and may have difficulty in quickly reinvesting such small sums.
2. The difficulty in determining a fair settlement if the purchaser makes payments in advance, or if he anticipates the payment of the entire amount.
3. The difficulty in arriving at the proper amount of each monthly payment, or if that is fixed, in ascertaining the number of such payments.
The first objection applies equally to all sales where partial payments are made periodically. The answer to it is that such a plan greatly enlarges the number of possible purchasers.
The second and third objections are more formidable in theory than in practice. An elementary knowledge of mathematics will render possible the solution of the two problems involved.
The advantages of this method of sale are so obvious that they need not be enlarged upon. The system should be more generally used. Possibly its lack of popularity has been caused by its similarity to what is usually known as the "building and loan plan," which is much disliked in some quarters. Such prejudice should not receive serious consideration.