Information > Financial Terms > This page

Amortization Loans
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority.)

Long-term loans, including farm mortgage loans, as allowed under the FEDERAL FARM LOAN ACT, in which the principal is extinguished or amortized during the period for which the loan is made.  Amortization loans are the only kind permitted under the Federal Farm Loan Act.  Before the enactment of this law, it was customary for farmers to borrow on farm mortgages as security subject to renewal.  Each renewal necessitated the payment of commissions and agent's fees, and in times of financial stringency, farmers sometimes lost their farms because they could not get their loans renewed.

Under the Federal Farm Loan Act, farmers, as members of local cooperative associations now known as Federal Land Bank associations, may take out loans from the Federal Land Bank System for as short a period as five years and for as long a period as 40 years.  Payments are made annually or semiannually so as to liquidate the entire indebtedness in the period of the loan.

The original Federal Farm Loan Board, since succeeded by the Farm Credit Administration, encouraged the Federal Land banks in establishing a standard 33-year loan.  It did this because this sort of loan was one which simplified the bookkeeping, made the matter of payments and amortization plain to everybody, and gave every borrower the chance to turn himself so far as time was concerned.  It spread the privilege of payment over a generation in time, and met every want of almost every borrower.

Back to Information